The Philippines

The Philippines Corruption Report

Snapshot

Philippines_230x114.pngCorruption restricts the efficiency of businesses operating in the Philippines. Extensive bribery within the public administration and vague and complex laws make foreign companies vulnerable to extortionand manipulation by public officials. Favouritism and undue influence are widespread in the courts, leading to time-consuming and unfair dispute resolution and to an uncertain business environment. Foreign investors are particularly vulnerable to bribery when trying to obtain licences and permits. Corruption plagues the customs administration, and fraud is routine for companies when filing import and export documentation. The Anti-Graft and Corrupt Practices Act criminalises active and passive bribery, extortion, abuse of office and conflicts of interest. Gifts are forbidden by law, but small-value gifts are cultural practice. Facilitation payments are not addressed by anti-corruption regulations. The legislative framework for fighting corruption is complicated and is not effectively enforced by the weak and non-cooperative law enforcement agencies.

Last updated: August 2015
GAN Integrity

(Want to receive more corruption report updates? Subscribe here!)

Judicial System

Corruption is rife in the Philippine judicial system. The efficiency of courts is impaired by a lack of resources and qualified staff, as well as bribery (ICS 2014). Foreign investors characterise the business environment as uncertain due to slow and unfair dispute resolution, expensive litigation processes and corruption among judges (ICS 2014). Procedural fairness and transparency are severely undermined by nepotism, favouritism, and impunity (HRR 2013). The political and business elite are able to influence prosecutions, convictions and sentences in criminal cases through bribes and personal influence (BTI 2014). The judiciary is underfunded by the state and often depends on local sponsors for resources and salaries, resulting in non-transparent and biased court decisions (FitW 2014).

Police

There is a high-risk of corruption when dealing with the Philippine police. Police officers are susceptible to bribery and show low-levels of trustworthiness in fighting corruption (SEC, Jan. 2014). The business costs of crime are high in the Philippines as police services do not reliably protect businesses from extortion and crime (GCR 2014-2015). Police are systematically involved in extortion and abuse of office (FitW 2014).

Public Services

There is a high-risk of exposure to corruption for foreign companies when dealing with public services in the Philippines. One in four enterprises report solicitation of bribes by public officials in the process of obtaining business permits and licences (SEC, Jan. 2014). The process of compliance with the government's administrative requirements in the Philippines is inefficient and burdens companies with unforeseen costs (GCR 2014-2015). The total number of procedures required to startup operations, including registering the company with local government and getting a construction permit, is more than two times higher than regional averages (DB 2015). Philippine officials involved in processing documents related to civil and property registration and building permits are more likely to solicit bribes compared to officials dealing with other types of services (Ombudsman's Office, Oct. 2014).

Land Administration

Corruption prompts weak protection of and enforcement of property rights in Philippines (BTI 2014). Conflicting legislation leads to arbitrariness, corruption and increased transaction costs for foreign companies (BTI 2014). The regulatory system around property rights is similarly ill-defined, and multiple agencies are involved in property administration (ICS 2014GCR 2014-2015). As a result, the Philippine land administration system is complicated and involves overlapping procedures (ICS 2014). A lack of professional staff in the land administration (because of insufficient financing) results in widespread bribery among officials and causes weak record management (ICS 2014). 

Tax Administration

Tax regulations are among the most problematic factors for conducting business in the Philippines, suggesting a high degree of bureaucratic complexity and a risk of encountering corruption, which is the most problematic factor (GCR 2014-2015). Officials at the Bureau of Internal Revenue (BIR) are believed to be prone to corruption and known for embezzlement and extortion (Manila Bulletin, Feb. 2014). Almost a quarter of companies report experiencing extortion, bribes or informal payments in the process of filing taxes (SEC, 2013). The Philippines government reports losing more than USD 10 billion per year due to tax-related corruption (Bloomberg Business, Sep. 2013). On average, companies make 36 tax payments a year and spend almost 200 hours filing, preparing and paying taxes, amounting to over 40% of total profit (DB 2015).

Customs Administration

There is a high-risk of encountering corruption when dealing with the Philippines customs administration. Corruption and red tape in customs significantly weakens the overall attractiveness of the country's business environment (GETR 2014). Customs officials are prone to corruption: Companies report regular bribe solicitation when trying to comply with import regulations (SWS, 2013). Consistent fraud with under-invoicing when importing and exporting costs the state billions of dollars in revenues each year (Wall Street Journal, Mar. 2014). Rampant corruption among Philippines customs officials results in uncontrollable smuggling of a range of products into the country (Inquirer, Apr. 2013). In April 2015, the head of the customs bureau, John Sevilla, resigned out of anger over widespread corruption and patronage in the employment process (Reuters, Apr. 2015).

Public Procurement

There is a very high-risk of corruption in the Philippine public procurement sector, which is subject to rampant corruption, irregularities and inconsistent implementation of legislation. The Government Procurement Act requires fair and competitive bidding, but the public sector is obliged to procure goods and services from companies with at least 60% Philippine ownership (ICS 2014). Most companies report bribes being necessary to win public-sector contracts in the Philippines (SWS, 2013). Local-level public procurement lacks transparency, fostering a culture of corruption through pork barrel (funds for discretionary use by representatives for projects in their respective districts) (BTI 2014). Philippine law allocates responsibility for monitoring, investigating and sanctioning for irregularities in public procurement between different state institutions, leading to misconduct, inefficiency and impunity (Sunlight Foundation, Oct. 2013).

Natural Resources

Companies operating in the natural resources sector face a very-high risk of corruption in the Philippines. Weak enforcement of legislation to prevent and punish corruption, rent-seeking and bribery among officials have contributed to excessive deforestation and forest degradation and have created a challenging business environment for foreign companies (REDD, Oct. 2014). Foreign investors should be aware of poor contract transparency in the natural resources sector,  and mining data is unevenly disclosed (RGI 2013).

Legislation

Companies should note that anti-corruption laws and strategies in the Philippines are complicated and are not enforced effectively; there is a lack of cooperation between law enforcement agencies, and officials are rarely prosecuted and convicted for corruption crimes (HRR 2013). The Anti-Graft and Corrupt Practices Act criminalises active and passive bribery,extortion, abuse of office and conflict of interest in the public sector. The Act forbids office-holders to accept any gifts or material benefits in exchange for any government permit or licence. Gifts are also addressed in the Revised Penal Code, which classifies them as indirect bribery. Under the Code, public officials are required to regularly file a statement of their assets and liabilities. In case of any discrepancy between the official's asset declaration and the amount of property or financial assets actually possessed, the official is subject to immediate dismissal. Punishments for corrupt acts includes imprisonment of up to ten years, a fine, removal from office, and/or confiscation of property. The Anti-Money Laundering Act criminalises money laundering and organised crime. The Act Establishing a Code of Conduct and Ethical Standards for Public Officials and Employees formulates standards for the personal integrity and accountability of civil servants. The Government Procurement Reform Act provides regulations for public procurement in the Philippines and requires a competitive and transparent bidding process. Philippine legislation does not contain any provisions on protecting whistleblowers who report on corruption. Facilitation payments are not addressed by law. The Philippines has ratified the United Nations Convention against Corruption.

Civil Society

The Philippines Constitution guarantees freedoms of speech and of expression, but these rights are not upheld in practice: Journalists experience violent assaults, harassment, threats and legal consequences (FotP 2014). The Philippines is among the most dangerous countries in the world for journalists (FitW 2014). The independent press and reporters are often sued for libel, which is used by the government as a tool to supress freedom of expression (FotP 2014). Independent observers report that bribes and other incentives are often used by high-level officials to motivate reporters to create one-sided reports for the official's benefit (HRR 2013). Private media offers a wide range of views; however, investigative journalism and political issues are avoided (FitW 2014). Internet access is not restricted, and online information is uncensored (FitW 2014). 

Philippine civil society is active and is represented by a wide variety of different organisations. Civil society organisations do not have a substantial influence on formal decisionmaking; however, they frequently stimulate political debates and initiate suggestions for legislative changes (BTI 2014).

Sources

Topics: East Asia & The Pacific