Fighting Corruption in Asia: Causes, Effects and Remedies

Fighting

Asia Causes, Effects and Remedies

Editors

John Kidd Frank-Jiirgen Richter

Fighting in A s i a Causes, Effects and Remedies

Fighting

CORRUPTION in A s i a Causes, Effects and Remedies

Editors

John Kidd Aston University, UK

Frank-Jurgen Richter World Economic Forum, Switzerland

V f e World Scientific I

Si New Jersey • London • Singapore • Hong Kong

Published by World Scientific Publishing Co. Pte. Ltd. 5 Toh Tuck Link, Singapore 596224 USA office: Suite 202, 1060 Main Street, River Edge, NJ 07661 UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE

British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library.

FIGHTING CORRUPTION IN ASIA Causes, Effects and Remedies Copyright © 2003 by World Scientific Publishing Co. Pte. Ltd. All rights reserved. This book, or parts thereof, may not be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system now known or to be invented, without written permission from the Publisher.

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V

Contents

Chapter 1

Introduction: Corruption a n d Its Measures John B Kidd and Frank-Jurgen Richter

Chapter 2

T h e OECD Convention a n d Asia Enery Quinones

27

Chapter 3

T h e Asian Money L a u n d e r i n g Explosion Peter Lilley

47

Chapter 4

Corruption in Context Leslie Palmier

73

Chapter 5

Is the 21st Century ' T h e Age of Asia-Pacific Region'? Hopes a n d Expectations as Viewed from East Russia Anatoly Korchagin and Alex Ivanov

Chapter 6

Chapter 7

Chapter 8

1

91

Monopoly Rights a n d Wrongs: Two Forms of Intellectual Property Rights Violations in Asia Hock-Beng Cheah

115

Corruption in Mainland China Today: Data a n d Law in a Dubious Battle Francois-Yves Damon

175

Culture a n d Level of Industrialization as Determinants of Corruption in Asia Domenic Sculli

203

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Chapter 9

Fighting Corruption in Asia

T h e Economy of Seepage a n d Leakage in Asia: T h e Most Dangerous Issue Gilbert Etienne

Chapter 10

Combating Corruption in Southeast Asia Clay Wescott

Chapter 11

T h e Institutional Economics of Legal Institutions, Guanxi, a n d Corruption in the PR China Matthias Schramm and Markus Taube

Chapter 12

Chapter 13

Chapter 14

Chapter 15

221

237

271

T h e Nature of Corruption H i d d e n Culture: T h e Case of Korea Yong-Lin Moon and Gary N McLean

297

Combating Corruption in Thailand: A Call to an E n d of the "White Buffet" Maneewan Chat-uthai and Gary N McLean

317

Comparitive Study of Anti-Corruption Systems, Efforts a n d Strategies in Asian Countries: Focusing on H o n g Kong, Singapore, Malaysia, a n d Korea Taek Kim An Exploration of the Dynamics of the 'Corrupter' a n d the 'Corrupted': Developing Cutting Edge Practices to Prevent Seduction Lionel Stapley

349

377

VII

List of Contributors

Maneewan Chat-uthai is an assistant professor in the graduate program in human resource development of the National Institute of Development Administration (NIDA), a public graduate university in Thailand. Maneewan received her B.A. from Thailand's Thammasat University and her M.A. from Northeast Missouri State University. She received a Japanese Government Scholarship to complete her Ph.D. at the University of Missouri-Columbia. Her work experience includes being chief researcher at the Business Information and Research Company, planning and policy analyst of King Mongkut's Institute of Technology, administrative secretary to the deputy permanent secretary for University affairs, and deputy and director of the NIDA-HRD Graduate Program. Maneewan is a frequent lecturer and guest speaker for staff development in public and private organizations. She has worked as a consultant for the United Nations Development Program and is currently seconded to join the UN International Labour Organization's International Program on the elimination of child labour, as the National Program Manager for Thailand. Hock-Beng Cheah researches and teaches at the School of Economics and Management, University College, University of New South Wales. In economics, his research interests are focused on economic development and political economy in the Asia-Pacific region. In the management field, his teaching and research interests include human resource management, organizational development, and entrepreneurship. He was a visiting Research Fellow at the Snider Entrepreneurial Center, University of Pennsylvania, where he proposed a new perspective of the entrepreneurial process. Since then,

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Fighting Corruption in Asia

h e has explored m o r e extensively the ramifications of this perspective of e n t r e p r e n e u r s h i p for organizations, m a n a g e m e n t a n d economic development. H e has also u n d e r t a k e n research at the Economics Research Center at Nagoya University, J a p a n , a n d the Institute of Southeast Asian Studies, Singapore. His work has b e e n published in a variety of m o n o g r a p h s a n d j o u r n a l s including: Creativity and Innovation Management, Journal of Business Venturing, Journal of Enterprising Culture, Manchester Papers on Development, a n d Labour & Industry. Francois-Yves Damon studied history at the S o r b o n n e , a n d Chinese in the Ecole des Langues Orientales, Paris, a n d Peking. Now is Maitre de conferences habilite a diriger des recherches, Universite Charles de Gaulle in Lille. H e is also C h e r c h e u r Associe at the Centre de recherches sociologiques sur le droit et les institutions penales, Ministere de la justice, Guyancourt. His thesis c o n c e r n e d the textile industry a n d trade in China, a n d since then h e has researched the economy, employment, a n d Law in China (e.g. Translation of the Law o n the deployment of the People's Army in H o n g Kong after the first of July 1997). H e is also a m e m b e r of the Association francaise de criminologie. H e has published widely, for instance o n criminality from various justice, police a n d Chinese reviews, in Perspectives Chinoises, a review of the French Center o n Contemporary China, H o n g Kong; o n illegal immigration, analysis of sociological a n d psychological conditions of six m u r d e r s by a lone m u r d e r e r in Fujian. A n d forthcoming is The Traffic of Women in Guangdong (women sold for domestic slavery, a n d pregnancy, t h e n re-sold); plus Transition and Corruption, (the three strata of corruption in China) ESSCA, Angers-France, 2001. His o t h e r work concerns ' t h e cultural revolution', a n d the statistical relationships between the Great Leap Forward a n d the constitution of the establishment of the provincial revolutionary committees. Gilbert Etienne is a professor emeritus of development economics at the Graduate Institutes of International Studies & Development

List of

Contributors

IX

Studies, Geneva. H e has spent many years in Asia since 1952, first as a student at the School of Oriental Civilisations & Languages, Paris; t h e n in business; a n d since 1959 for research or consultancy with the Swiss government. H e has published a n u m b e r of books o n development in South Asia, Afghanistan a n d China, the latest being: Rural Change in South Asia — India, Pakistan, Bangladesh. New Delhi, Vikas. Also Feeding Asia in the next Century. Macmillan, New Delhi; a n d Chine, Inde, le match du siecle. Presses de Sciences Po, Paris. This latter book has b e e n u p d a t e d a n d translated into Chinese a n d published by X i n h u a Press, Peking, 2000. H e has b e e n visiting professor at M.I.T., T h e Economic Developm e n t Institute of the World Bank, has often lectured in France, Pakistan, India a n d China. Alexander M Ivanov gained his Doctor of Laws after his activity as a state prosecutor being a lawyer for ten years. Now, he is a senior lecturer o n comparative law a n d criminology at law school of FESU, a n d as a fellow of Vladivostok centre for the study of organised crime a n d corruption. This centre was established by, a n d works u p o n the initiative of Professor Louise Shelly (American University, Washington). H e has a b o u t 50 papers, book chapters a n d books o n organised crime, economic crimes, corruption a n d comparative, criminal, constitutional a n d c h u r c h law. John Kidd was educated in the UK a n d worked for several major UK organizations before returning to University scholarship. In the Universities of Birmingham a n d now Aston Business School, his research focused on the development of IT use in SMEs; the m a n a g e m e n t of projects; a n d the softer m a n a g e m e n t issues that concern multinational j o i n t ventures. H e has held visiting professorships in several E u r o p e a n universities, a n d in the China E u r o p e International Business School, Shanghai. His recent books o n Asian matters, co-edited with Li X u e a n d Frank-Jurgen Richter, are Maximising Human Intelligence Deployment in Asia: The 6th Generation Project a n d also Advances in Human Resource Management in Asia. L o n d o n & New York, Palgrave (both 2001).

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Taek Kim is currently working as a special advisor to the Korea I n d e p e n d e n t Commission Against Corruption (KICAC) in Korea. Kim was a visiting scholar at the Transnational Crime a n d Corruption Center at the American University, Washington, D.C., USA t h r o u g h 2001-2002, t h o u g h h e r e m a i n e d attached to the SIT Institute of Seoul City G o v e r n m e n t (from 1999). T h e Ministry of Education in Korea awarded him a full scholarship to visit the US. H e majored in bureaucratic corruption a n d public administration, a n d in 1997 h e obtained his Ph.D. in Korea. Kim has worked at Soong Sil University, University of Seoul, Dan Kook University, Hallym University Broadcasting University a n d Kang Won National University as Adjunct Faculty (from Oct. 1992-Dec 2000). H e was also a policy consultant official in the presidential commission o n anti-corruption u n d e r the Korean President Kim Dae J u n g (20002001). H e is a distinguished corruption scholar a n d N G O researcher in Korea, a n d h e is well known for his research on bureaucratic corruption, writing a n d presenting many papers at world-class conferences. Recently, he has b e c o m e m o r e interested in global anti-corruption, crime a n d h u m a n rights. Anatoly G Korchagin after his Doctor of Laws, h e worked as a senior lecturer o n criminal law, correctional law, criminology at the law faculty a n d later at the Law School of the Far East State University (FESU), Vladivostok, Russia. Besides lecturing, h e is the Dean of the Law Faculty of FESU a n d a well-known scholar. H e has over 100 papers, book chapters a n d books o n economic crimes, corruption a n d comparative criminal law, a n d h e combines his scientific activity with his lawyer's practice consulting citizens a n d companies. Peter Lilley has b e e n involved in the prevention, detection a n d investigation of international fraud a n d money l a u n d e r i n g for the last seventeen years. H e spent 13 years with a large financial institution where h e created a n d h e a d e d their fraud a n d m o n e y laundering prevention department. H e has led n u m e r o u s successful projects worldwide a n d advised a wide range of organizations o n the prevention of m o n e y l a u n d e r i n g a n d organized crime.

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Contributors

XI

Peter Lilley holds an English degree from the University of East Anglia, is a fellow of the UK Chartered Institute of Banking, a certified fraud examiner, a fellow of the Royal Society of Arts a n d a m e m b e r of the Institute of Professional Investigators. H e has written n u m e r o u s articles together with two books, the latest being Dirty Dealing — The Untold Truth About Global Money Laundering, Kogan Page, 2001. H e now runs his own international m o n e y l a u n d e r i n g mitigation firm, Proximal Consulting. Gary N McLean is a professor a n d coordinator of h u m a n resource development a n d adult education at the University of Minnesota, St. Paul, where h e is also a Morse Alumni Distinguished Teaching Professor. H e is a frequent speaker a n d has written over 100 j o u r n a l articles a n d 20 textbooks. His c u r r e n t research a n d writing interests are almost entirely in international contexts. H e is ex-editor for the Human Resource Development Quarterly, ex-general editor for Human Resource Development International, North American editor for the Journal of Transnational Management Development, a n d consulting editor for the Journal of Education for Business. H e currently serves as president for the Academy of H u m a n Resource Development a n d previously served as president of the International M a n a g e m e n t Development Association. H e has b e e n an i n d e p e n d e n t consultant, primarily in training, organization development, a n d quality transformation, for over 30 years. His undergraduate degree was in Business Administration a n d Secretarial Studies at the University of Western Ontario, in L o n d o n , Ontario, a n d his masters a n d doctorate in Business Education are from Teachers College, Columbia University, in New York City. Yong-Lin Moon is a professor at Seoul National University, Seoul, Korea, a n d is o n e of Korea's foremost educators in educational psychology, moral d e v e l o p m e n t / e d u c a t i o n , a n d h u m a n resources development. H e is a B.A. a n d M.A. graduate of Seoul National University a n d a Ph.D. graduate of the University of Minnesota. Later, h e served as director of the Moral Education Bureau at the Korea Education Development Institute (KEDI), in which h e

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Fighting Corruption in Asia

directed the design of the nation-wide curriculum a n d textbook development for moral education in elementary a n d secondary education. H e also served as a standing m e m b e r to the Presidential Commission for education reform, in which h e led a strong task force for education reform research a n d p r o p o s e d an education reform agenda. H e led Korean education as Minister of Education in President Kim D a e j u n g ' s administration. During his visit to the University of Minnesota as a Fulbright visiting scholar, he focused o n education reform a n d corruption problems. Leslie Palmier was formerly reader in sociology at the University of Bath a n d associate fellow of St Antony's College, Oxford. H e was also founder-director of the center for development studies at the University of Bath. H e has b e e n c o n c e r n e d with Asian studies since 1951, w h e n h e u n d e r t o o k field research in Indonesia. His publications include State and Law in Eastern Asia (ed.) (Aldershot, D a r t m o u t h 1995; Detente in Asia (ed.) L o n d o n , Macmillan 1992; The Control of Bureaucratic Corruption: Case Studies in Asia. New Delhi, Allied, 1985. Enery Quinones is h e a d of the anti-corruption division of the departm e n t for financial, fiscal a n d enterprise affairs in the Organisation for Economic Co-operation a n d Development (OECD). As h e a d of the division she is responsible for overseeing enforcement of the OECD anti-bribery convention a n d o t h e r agreements b a n n i n g bribery a n d corruption. Thirty-five countries participate in these agreements putting the organisation a n d the anti-corruption division at the forefront of international efforts to stem corrupt payments in international business transactions. T h e division conducts regional activities covering the former Soviet U n i o n countries, Asia-Pacific, Latin America, a n d South East E u r o p e to encourage dialogue a n d co-operation between public authorities a n d business a n d civil society representatives. T h e OECD recently published No Longer Business As Usual: Fighting Bribery and Corruption u n d e r h e r m a n a g e m e n t a n d she has written articles for specialised anti-corruption publications, the most

List of

Contributors

XIII

recent for Transparency International's Global Corruption Report 2001. She is a United States national living in Paris since 1976. She received h e r University degree in Economics from New York University, a n d h e r Juris Doctor from Harvard Law School. Frank-Jiirgen Richter is the Director in charge of Asia at the World Economic Forum, Geneva. H e was educated in Germany, France, Mexico a n d J a p a n . At o n e time, h e was based in Beijing for several years where h e m a n a g e d the operations of a E u r o p e a n multinational enterprise: there h e developed naturally a keen interest in Asian business practices. As a scholar-practitioner, h e has written several books about Asian business, international m a n a g e m e n t a n d global competition. His most recent books include The East Asian Development Model (MacMillan, 2000). Domenic Sculli lives in H o n g Kong with his wife Oi-yin a n d daughter Pauline. H e has b e e n employed by the University of H o n g Kong since 1974, a n d is now a senior lecturer in the d e p a r t m e n t of industrial a n d manufacturing systems engineering. H e was b o r n in the small village of Ferruzzano in s o u t h e r n Italy a n d at the age of 10 h a d to follow his emigrating parents to Melbourne, Australia. Earlier, after a long exposure to Australian culture a n d education, h e graduated from the Royal M e l b o u r n e Institute of Technology in 1967 with a fellowship diploma in mathematics; h e is now a fellow of T h e Institute of Mathematics a n d Its Applications a n d a charted mathematician. H e was employed by Australian Consolidated Industries as an operational research analyst from 1968 to 1973, a n d was given leave for o n e year to complete the MSc (operational research) p r o g r a m m e at Birmingham University in 1 9 7 0 / 7 1 . His early research interests were mainly technical a n d resulted in quite a n u m b e r of publications in the O R / M S journals. In later years, h e c o n d u c t e d a n d published research in the cross-cultural aspects of m a n a g e m e n t . Matthias Schramm h e studied economics a n d Mandarin in Duisburg a n d W u h a n (PR China). As of April 2001 h e is an assistant at the faculty of economics, Institute for East Asian Studies a n d Chair for

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East Asian Economics (China) at the University of Duisburg: further h e is a Ph.D. student at the Institute for Marketing of Food a n d Agricultural Products at the University of Gottingen. His areas of research include — new institutional economics, the economics of transformation a n d institutions with a regional focus on China, game theoretic analysis of price formation with special focus on food industry a n d trade, philosophy of science. Lionel F Stapley is the Director of OPUS (an Organisation for Promoting Understanding of Society) a n d an organizational consultant. T h e work of OPUS is c o n c e r n e d with ' p r o m o t i n g a n d developing the study of conscious a n d unconscious organizational a n d societal dynamics t h r o u g h educational activities, research; consultancy a n d training; and, the publication a n d dissemination of these activities for the public benefit.' H e has worked as a staff m e m b e r of several international G r o u p Relations Conferences a n d his consultancy clients include a variety of organizations including the football industry. H e is the a u t h o r of The Personality of the Organisation: A Psychodynamic Explanation of Culture and Change (1996), Free Association; a n d co-editor with Larry Gould a n d Mark Stein of The Systems Psychodynamics of Organisations (Karnac, 2001). H e is a Fellow of the Chartered Institute of Personnel a n d Develo p m e n t (FCIPD), a Fellow of the Institute of M a n a g e m e n t (FIMgt); a n d a m e m b e r of the International Society for the Psychoanalytic Study of Organisations (ISPSO). Markus Taube born in 1965, studied sinology a n d economics in Trier a n d W u h a n (PR C h i n a ) , a n d holds a doctorate from the R u h r University, Bochum, in the faculty of the economics of East Asia. H e was the winner of the Walter-Eucken Price 1998 while a researcher at the Ifo Institute for Economic Research, Munich, from 1996 to 2000. As of April 2000, has b e c o m e the professor for the East Asian Economy a n d China at the University of Duisburg. H e researches u p o n the theory of economic o r d e r a n d new institutional economics, the economics of developing a n d transformation economies with a regional focus o n China a n d Southeast Asia.

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Clay G Wescott is a senior public administration specialist with the Asian Development Bank. Before that, as deputy director for UNDP's Management Development and Governance Division, he assisted 35 countries with public sector reforms in Asia and the Pacific, Africa, and the Caribbean. During several consulting positions through 1976-1989, he was director of the finance, management and economics, Division of Development Alternatives, Inc. in Washington, D.C. He also worked with PriceWaterhouse, Dames and Moore, and the Harvard Institute for International Development. Among many assignments, he advised the governments of Malawi and Kenya on financial management and decentralization reforms. He has degrees in government from Harvard College (A.B. 1968, Magna Cum Laude), and Boston University (Ph.D., 1980). He is the author of many published articles and book chapters, and is a certified management consultant.

1

Chapter 1

Introduction: Corruption and Its Measures

John B Kidd and Frank-Jurgen Richter

Introduction Let us take, just for the m o m e n t , take the viewpoint of o n e of us, J o h n Kidd... as I grew u p in rural England, I lived to play a mixture of cricket a n d rugby football. These seemed to m e to be natural simple pastimes. In a s u m m e r evening, I was able to go to the village cricket field to sit a n d watch the players battling to win, bowler against batsman, with the latter s u r r o u n d e d by fielders all of w h o m were intent o n intimidating that lone guy into making a mistake. Yet, after this period of palpable aggression all the guys congregated r o u n d sandwiches (often p r e p a r e d by their wives) a n d drank a b e e r (sometimes provided, as a loss leader by the local p u b landlord). T h e r e was a clear split between the activity of playing this skilful game a n d the social elements a p p a r e n t in the casual after-match de-briefing a n d subsequent camaraderie. I h a d the same feeling as I played a m a t e u r rugby: a game with 15 players — n o t the professional o n e with only 13 players (who are all paid a high salary, with even h i g h e r bonuses). Again I enjoyed the rivalry a n d the intensity of a powerful game (even if covered in chilly winter m u d ) , which was to be balanced against the friendly eating a n d

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John B Kidd & Frank-Jurgen Richter

drinking after the game when all on-field animosity was forgotten. It was playing the game that counted, not the result. At some point in my 'growing up', I met the beginnings of corruption in these simple games. The better amateur players were being offered 'boot money'. That was understandable to me and to many players, as those good players were called to practice long hours each week, to travel to country games and even to national games far away from our home ground. The rules of the amateur game forbade any payment to these important players — yet national honor had to be upheld by the young men — hence the practice of placing 'travel expenses' in their street shoes in the locker room became commonplace. There was much furor at the breakdown of their amateur status. Now of course I am gready perturbed by the widespread corruption in all sport; no game seems to be free of its effects, not even in the Olympic games. In the latter, maybe even more than in national games, there has been a rampant demand for [and use of] performance-enhancing drugs since the honor of individual countries depends on winning 'gold'. But change is afoot: Sir Paul Condon, one time head of Scotland Yard (the UK's police headquarters), is developing a dossier upon global corruption in the game of cricket. In his preliminary report, he says that corruption has been rife in cricket since the 1970's (Condon, 2001). Soccer too has its problems — also caused by the lure of money — either directly to individuals or associated with the concentration of a major set of games at one location: such as the World Cup. A decade ago, the Cup generated about $100 million, but the events in Korea and in Japan in 2002 are expected to generate over $1 billion in television and marketing rights alone. It is big business, and as such attracts many villains. Business Week documents some of the Federation of International Football Associations' (FIFA) problems, such as a missing $50 million transferred from the Brazilian TV group Globo, but not deposited in a designated bank account (Business Week, June 25 th , 2001). The other author, Frank-Jiirgen Richter, was raised in Germany — naturally he likes

Corruption

and Its Measures

3

soccer, a n d h e too is c o n c e r n e d about the scandals a n d corruption in that game. These are m o d e r n problems, a n d we will r e t u r n to these times in d u e course. First we have to note that corruption has b e e n with us from time immemorial. It is often said that prostitution is the world's oldest profession, a n d accounting came second. After all, s o m e o n e has to m a n a g e the monies gleaned by nefarious means, a n d most likely, as the monies would have b e e n obtained in ways outlawed by society there would also have b e e n corrupt accountants, advisors or extortionists. We may see this effect even a thousand years ago when the O r d e r of the Knights Templar was set u p to protect the pilgrims o n their passage to the Holy Land. These were warriors who should never retreat, who should be valiant a n d incorruptible. Yet d e e p in their own history is mystery — a n d if there is mystery t h e n there are stories that develop: b o t h correct a n d false. The Order of the Knights Templar, despite its relatively short life span, was a major instrument of change in medieval Europe. Within fifty years of their foundation in 1150 AD, they had become a commercial force equal in power to many states; within a hundred years they had developed into the medieval pre-cursors of multi-national conglomerates with interests in every form of commercial activity of that time and were far richer than any kingdom in Europe. Using their own commercial insights as well as techniques which they adopted from their Muslim opponents in the east, they developed the concept of financial transfer by 'note of hand' into something like its modern equivalent: they developed also the bankers cheque and the pre-cursor of the credit card (round about 1200 AD). From their amassed wealth they lent to bishops to finance church building programmes; and to princes, kings and emperors to finance their state works, building programmes, wars and crusades. Within the twin embrace of financial security and safe travel, Europe began to transform itself. Safe and effective trade over longer distances led to the general accumulation of capital and the emergence of a newly prosperous merchant class, the urban bourgeoisie. The newfound wealth of the city merchants changed the balance of power still further in favour of the towns and cities and thus their inhabitants. The Order was not

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John B Kidd & Frank-Jurgen Richter

merely the medieval pre-cursor of the m o d e r n multi-national conglomerate but was in many respects an early embryonic form of the European Union. However, success, wealth and power stimulated jealousy and resentment, especially from those who were heavily in debt to the order. We thus see the potential for corruption and strife arising between the 'haves and have nots' in mediaeval times (extracts from http://www.tylwythteg.com/templar.html — accessed July 3 rd , 2001). Readers might like to note a 'sister' book to this is focused o n 'Governance in Asia' (Kidd & Richter, 2002). In that book, we address issues arising from co-joining different models of corporate a n d national cultures in asian countries wherein some nations are j u s t b e c o m i n g e c o n o m i c a l l y viable yet have b e e n i n t i m a t e l y [economically] invaded by the major international corporations over the last 20 to 40 years, perhaps longer. In that book, we illustrate how m o d e l s of g o v e r n a n c e are d e p e n d a n t o n t h e d e g r e e of corruption prevalent in the local society (as seen in this book) — in many ways these two books c o m p l e m e n t each other.

The Measurement of Corruption We should now turn to the measurement of corruption — for without a base we c a n n o t make appropriate comparisons. To p u t this into a context, Peter Lilley wrote earlier a b o u t money l a u n d e r i n g in its various forms, n o t i n g that j u s t o n e form — illicit drugs dealing — was estimated to have a turnover of $400 billion p e r a n n u m ; a n d this turnover was larger t h a n the world's c o m b i n e d oil a n d gas industry (Lilley, 2000: 3). H e continued, saying that the whole of the laundering processes — which is n e e d e d to 'make clean' monies arising from drugs, prostitution, a n d c o r r u p t i o n in general — reaches a staggering $1.5 trillion, a n d it is about 5% of the world's Gross Domestic P r o d u c t (GDP). It is the m a g n i t u d e of this vice that makes it imperative to u n d e r s t a n d o u r base m e a s u r e m e n t s a n d thus be able to state what we have d o n e to ameliorate its effects. Although this book, t h r o u g h the efforts of all its authors, reviews corruption in Asia we all u n d e r s t a n d that this is a global issue.

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and Its Measures

5

Hardly a week passes without national press in some country, or international j o u r n a l s such as Time, BusinessWeek, Fortune, the Economist [and all serious reportage] making some reference to corruption in Asia, or E u r o p e or the Americas — a n d they refer to the very high profile trials therein involving senior ministers, or exministers of State. We find these people are n o t above the law, be they the one-time US President, or the senior ministers of Germany, France or Italy; or in o t h e r states in Africa or South America. T h e public is b e g i n n i n g to realise that their judiciary are i n d e p e n d e n t of the State a n d can enforce the law with the same 'sharp teeth' it uses o n us, the public. "One law for all" is u n d e r s t o o d in Western countries. It is seen to be m o r e or less working, since indictments a n d gaol sentences are being passed on senior figures that were once u n t o u c h a b l e a n d apparently above the law. Happily local television in China is now depicting corruption in its society in general, though in many cases it also shows the weak a n d oppressed d o n o t achieve the justice they deserve. Yet this is i n d e e d progress, as transparency b e c a m e the n o r m in the run-up to their W T O entry: thus ordinary people can be forewarned a b o u t the corrupt practices they knew took place, b u t could only refer to folk-tales. Even so, 'the public' remains confused: take two items in the (UK) Financial Times [Friday, J u n e 1 st , 2001: 12]. O n e item by Gord o n Cramb r e p o r t e d a ministerial m e e t i n g in T h e H a g u e wherein the delegates were hopeful a b o u t the setting u p of a United Nations legal instrument to fight corruption. In part, this would concern itself with 'off-shore' international financial operations a n d thus secure the r e t u r n of corruptly derived monies to their rightful countries. Yet, on the same page, an item by Edward Alden & Michael Peel r e p o r t e d that the Bush administration in the US is 'reconsidering the vices a n d virtues of financial privacy'. They wish to relax the disclosure rule o n cash deposits of $10,000 or m o r e — which, if carried t h r o u g h , would severely weaken the ability of US banks to control money laundering. In turn, as we u n d e r s t a n d from Lilley (ibid), there would be r a m p a n t abuse of this newly uncontrolled banking system to p r o m o t e the whole spectrum of illegal operations.

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John B Kidd & Frank-Jiirgen Richter

A few major groups have stood out against corruption: nong o v e r n m e n t o r g a n i s a t i o n s s u c h as t h e O E C D , T r a n s p a r e n c y International, a n d m o r e recently — we see consultants amassing data from their global outposts: firms such as PricewaterhouseCoopers. We will review their efforts.

The OECD Mission against Corruption We note the global pressure to have organisations conform to GAAP (Generally Acceptable Accounting Principles). This was driven first by United States accountants looking for easier-to-apply rules yielding g r e a t e r t r a n s p a r e n c y , w h i c h in t u r n , w o u l d p r o m o t e c l e a r e r comparability across firms in different States in the United States, a n d later between firms located in different countries. Accounting regulators in many countries have agreed their national m e t h o d s should incorporate GAAP. Even d u r i n g the S u m m e r of 1997 China publicly agreed to a d h e r e to GAAP, as h a d the J a p a n e s e by that time: b u t the Chinese authorities said they would 'do it their way'. It is p r u d e n t to t h i n k a b o u t t h e m e a n i n g of... 'generally acceptable' as it may apply in Asian countries since it has b e e n shown that accounting disclosure, at least historically, is strongly correlated with cultural measures (note later in this c h a p t e r ) , a n d t h a t o r i e n t a l c u l t u r e s a r e b i a s e d t o w a r d s secrecy a n d n o n transparency (Gray & Vint, 1995; Salter & Niswander, 1995; Zarzeski, 1996). Thus o n e may now ask if different regularity practices a n d the m o r e o p e n financial markets in these regions will force firms to be m o r e transparent (in a GAAP sense)? In fairness, we should note that opacity is not a unique East/West issue since the Channel Islands, Belgium, Spain a n d Switzerland all practice low levels of financial disclosure (Gray, 1996). A n d Austria has 'Sparbrucken' banks that are m o r e secretive t h a n one's traditional view of a Swiss bank; notwithstanding the former country is a signatory of the OECD Article against Corruption (Lilley, 2000). Research o n the Oriental concept of probability a n d risk has shown that asian persons may be 'fate-oriented' a n d less willing to take a probabilistic view of the world (Phillips & Wright, 1977).

Corruption

and Its Measures

1

This might suggest that sophisticated accounting is n o t n e e d e d in Asia since "what will b e — will b e " a n d ultimately n o subtle provisioning will hide p o o r p e r f o r m a n c e . O n the o t h e r h a n d the Asian collective spirit will carry an ailing firm so ameliorating any loss of face. In contrast, in the West, t h e rules a n d clarity of accounting might well r e p o r t a technical failure, a n d the firm be forced to liquidate, n o t withstanding any mitigating circumstances. T h e lack of disclosure in Asian accounting a n d the degree to which m a n a g e m e n t accounting is n o t u n d e r t a k e n in Asia are seen as quite d e e p research issues by Western academic accountants — even to the extent that some question if accounting practice might i n d e e d change Asian culture! (Baydoun et al, 1997: 422). T h e World Bank a n d the International Monetary F u n d (IMF) are now ready to 'be whistle blowers' when they detect funding diversions, a n d o t h e r organisations now m o r e publicly claim they resist bribery. T h e U n i t e d States has h a d laws from 1977, which criminalized commercial payoffs to public servants abroad if offered by US national personnel; a n d others follow similar reasoning — the Royal D u t c h / S h e l l G r o u p in its April 1998 a n n u a l r e p o r t said it fired 23 of its workers o n ethical grounds a n d terminated contracts with 95 firms, also o n ethical grounds (Walsh, 1998). It is now clear that J a p a n has b e e n paralyzed for years t h r o u g h being unable to disentangle its o p a q u e systems which are resting o n bribery a n d extortion. Similarly in China, there is a strong history of guandao (official corruption) that, according to Walsh, is m o r e pervasive than that in J a p a n . President J a i n g Zemin declared war o n this 'evil' once it became obvious that a $2.2 billion scandal h a d involved C h e n Xitong (who was a former Party chief a n d Politburo m e m b e r ) a n d his deputy Wang Baosen (who killed himself). Altogether some 500,000 persons in China in recent years have b e e n r e p r i m a n d e d or p u n i s h e d for taking kick-backs, b u t the use of extortion is still rife in China: Walsh (ibid). I n d e e d a cursory review of the Englishlanguage press reporting o n China (and m o r e widely o n Asia) raises these issues frequently. Thus we have to suppose the following r e c o m m e n d a t i o n of the OECD will prevail:

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John B Kidd & Frank-Jurgen Richter

In 1994, the OECD Council adopted the 'Recommendation on Bribery of Foreign Public Officials in International Business Transactions', which calls on Member countries to act to combat illicit payments in international trade and investment. As part of that Recommendation, reference was made to the need "to take concrete and meaningful steps including examining tax legislation, regulations, and practices insofar as they may indirectly favour bribery": C (94) 75. Following this, the OECD's Committee on Fiscal Affairs undertook an in-depth review of tax measures that may influence the willingness to make or accept bribes. The Committee concluded that bribes paid to foreign public officials should no longer be deductible for tax purposes, which will require many Member countries to change their current practices [emphasis by John Kidd] [The Recommendation was adopted by the Council of the OECD on 11 April 1996, and ratified by many of the OECD countries by 1997]. It is thus quite alarming, as we m e n t i o n e d above, to find the Bush administration is now inclined to relax their b a n k i n g rules that d e m a n d e d a careful investigation of persons who wished to deposit m o r e than $10,000 as cash. This base level ruling has evolved across the world to guard against the deposition of illicit payments, or ' h o t ' money, into an official b a n k i n g e n v i r o n m e n t where, once the money is deposited, the depositor has access to 'clean', or as o n e may say — ' l a u n d e r e d ' — money.

Corruption Perception Index Transparency International (TI), located in Berlin, was set u p in the early 1990s to help combat corruption a n d it now has National Chapters in 77 countries. Its website [http://www.transparency.org] declares: Transparency International is a non-governmental organisation dedicated to increasing government accountability and curbing both international and national corruption. Our movement has multiple concerns:

Corruption

and Its Measures

9

•

humanitarian, as corruption undermines and distorts development and leads to increasing levels of human rights abuse; • democratic, as corruption undermines democracies and in particular the achievements of many developing countries and countries in transition; • ethical, as corruption undermines a society's integrity; and practical, as corruption distorts the operations of markets and deprives ordinary people of the benefits which should flow from them. We will highlight o n e of their indices relating to the perception of corruption that they first began publishing in 1995. O n e should note that they, a n d we, have to accept these measurements as 'being in the eye of the b e h o l d e r ' — h e n c e their use of the word perception — since there are n o absolute measures. T h e OECD r e c o m m e n dation (above) is indicative of the same problem — decrying the official acceptance of bribery as a tax-deductible item of expenditure which a c c o u n t a n t s in many countries a r o u n d world h a d o n c e t h o u g h t quite acceptable. Transparency I n t e r n a t i o n a l has m o r e recently developed an Annual Global Corruption Report (GCR), which in 2001 is being funded by grants from the British, Dutch, G e r m a n , a n d Norwegian governments. TI produces statements essentially saying they wish to keep corruption a p r o m i n e n t item o n international policy agendas, a n d that the GCR will serve as a central e l e m e n t in TFs advocacy work. F u r t h e r m o r e , a n d I quote from their web site again, "The GCR will also contain a separate empirical section... TI will solicit contributions from leading scholars and institutions engaged in empirical research on corruption for this section... These contributions will enable this section of the GCR to reflect the "state of the art" in knowledge on corruption, as assessed from the perspective of various organisations - public sector, private sector, and academia". But what of their 2001 Corruption Perception I n d e x (CPI)? "This year's index, published by the world's leading non-governmental organisation fighting corruption, ranks 91 countries. Some of the richest countries in the world — Finland, Denmark, New Zealand, Iceland,

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John B Kidd & Frank-Jursen Richter

Singapore and Sweden — scored 9 or higher out of a clean score target of 10 in the new CPI, indicating their very low levels of perceived corruption. But 55 countries — many of which are among the world's poorest — scored less than 5, suggesting high levels of perceived corruption in government and public administration. The countries with a score of 2 or less are Azerbaijan, Bolivia, Cameroon, Kenya, Indonesia, Uganda, Nigeria and Bangladesh". Peter Eigen, the chair of TI, continues, "The new [CP] Index illustrates once more the vicious circle of poverty and corruption, where parents have to bribe underpaid teachers to secure an education for their children and under-resourced health services provide a breeding ground for corruption. The world's poorest are the greatest victims of corruption. Vast amounts of public funds are being wasted and stolen by corrupt officials." We will n o t r e p r o d u c e their index in its entirety, after all this book focuses o n corruption in Asia, b u t we will rearrange the data to be related to issues that might be relevant to the Ministers in Singapore (as p e r Figures 1 a n d 3). Some while ago a formula was derived (Kogut & Singh, 1988) which allowed o n e to create a simple comparison against a target — in fact they applied their formula to the data collected by Hofstede o n cultural differences (Hofstede, 1980 & 1991). They showed how to c o m b i n e the four original Hofstede measures into o n e index that would be suitable for ranking against a target profile — as we m e n t i o n e d above, we will take the profile of Singaporeans as the target to c o m p a r e with o t h e r countries. It is thus possible to plot the relative rankings with respect to cultural difference [from the zero base of Singapore] against cross-related national corruption figures. We d o this in Figure 1. Note that the clustering ellipses are only to draw attention to three groups of data points — they are n o t derived from a mathematical algorithm. It seems quite clear that Singaporeans would prefer to work with people from H o n g Kong, as they are close to Singapore o n the cultural difference scale, a n d n o t distant with r e s p e c t to corruptibility. O n the o t h e r h a n d , they may wish to work with those culturally close r a t h e r than with persons holding m o r e different views a n d or ethics. Yet, as the two larger clusters indicate, most of

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the asian countries (which we suggest might be culturally closer to the Singaporeans) are m u c h m o r e corrupt than the Singaporeans; b u t those countries which are similarly c o r r u p t (little distant from Singapore o n this measure) are rather far away w h e n considering cultural differences. Of course we may p r e s u m e for the Singaporean government these data raise problems for their future international relationships. They have said they wish to have bi-lateral trade agreements with many countries rather than follow the World Trade Organisation suggestion of having multi-lateral agreements. But which countries should be their targets?

Opacity Index Recently, PricewaterhouseCoopers (PWC) at the 2001 annual meeting of the World Economic F o r u m in Davos, Switzerland i n t r o d u c e d a new index of corruption. In fact, it is a broad measure covering five sectors d e e m e d to be i m p o r t a n t to businesses venturing across their national borders. T h e PWC Opacity m o d e l 'CLEAR' encompasses corruption, legal, economy, accounting a n d regularity opacity. In their 'Opacity I n d e x ' any increase above a nominal base in o n e or m o r e of the measures raises the opacity of doing business "over there", a n d thus raises the perceived difficulty of the venture. We illustrate their m o d e l in Figure 2, a n d note that greater detail may be obtained from their website [http://www.opacityindex.com/] where a full discussion is offered of how their data was elicited a n d compiled into a c o h e r e n t index. PricewaterhouseCoopers say in their 'opacity' web site: "Opacity a n d Transparency are the master terms in a truly i m p o r t a n t worldwide dialogue. This site is dedicated to presenting a n d hosting informed discussion of a new Opacity Index, which measures the opacity of a growing n u m b e r of countries in all parts of the world". They continue, "Opacity is said to a d d m o r e than $160 billion to countries' annual borrowing costs". It may seem clear t h a t the Opacity I n d e x (OI) is in many ways c o m p a t i b l e with t h e CPI of T r a n s p a r e n c y I n t e r n a t i o n a l .

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Indeed, Figure 3 shows the relationship between the OI a n d the CPI does have a good [statistical] correlation (R 2 = 0.62) — b u t n o t all data from b o t h sets can be correlated d u e to a lack of overlapping measures. It is clear that Singapore (if we continue to focus o n this country) scores relatively too low against the regression line — suggesting it is m o r e transparent t h a n might be expected. But o n the o t h e r h a n d , we may see that China (absolutely m u c h m o r e corrupt than Singapore) is seen also to b e m o r e o p a q u e t h a n the regression line would lead o n e to expect. E n t r e p r e n e u r s from Singapore might be a little shocked to find the reality (as expressed by this figure) is n o t as they might have h o p e d it to be as they attempt to create a j o i n t venture (Chan & Tong, 2000: 79). These remarks will be amplified slightly below.

The Business of Asian Business We have to u n d e r s t a n d guanxi, the Chinese word for 'networking' (Lou, 2000). We accept this concept pervades the whole of Asian business, as does the word itself having m i n o r changes to spelling a n d p r o n u n c i a t i o n as o n e passes t h r o u g h different Asian countries. Yet its m o d e of use should n o t be taken for granted — especially when focusing o n expatriates (Pyatt et al., 2001). In a study centred on the traditions of family business in Hong Kong and Thailand, these authors found that the firms they had studied had managed to disentangle cultural and relational components from the transactional and pragmatic (as noted in Donleavy, 1995). However they cautioned against exaggerating the scope and domain of these Chinese forms of organisational architectures. They further noted that the Chinese sojourners in the 'outposts' of Hong Kong and Thailand have no greater affinity with each other locally (as diaspora) than with their counterparts in Europe, America or other countries; or indeed as between the 'British' in the US or in Australia with those in the 'homeland'. On the other hand, they concluded, the elite in the major entrepreneurial firms have strong linkages that go beyond kinship to

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support their trade. Perhaps we may question if it is these forms of hidden links that may support corrupt practices as a way if tying-in senior managers into a wide web of intrigue? John Child and others further caution us, 'the outsiders', in a report to the Hong Kong Chamber of Commerce. They warn us, 'don't get into any relationship that depends on guanxi — you don't understand it' (Child et al, 2000). In other words with respect to guanxi, given that in its promotion many banquets are given, as well as many gifts exchanged (together with other giving of favours) it is very difficult for an outsider to understand the complex net of personal relationships. Thus staying outside is quite a positive policy — but if outside, one will suffer the fate of the outsider — one is starved of insider information. Finally, perhaps we have to accept the complex history that China has had. We note that the relatively recent Cultural Revolution left many without good education and which allowed a cadre to develop who were eventually seen to be corrupt and who condoned corrupt practice. We are reminded by Wu Wei-Ping of the film Farewell to My Concubine... in which two childhood friends were turned against each other (Wu, 2000). In the Cultural Revolution it was commonplace, and in that non-ideal world it was understandable that children turned against parents, spouse against spouse, and so on — simply to survive, to have a reward, or to be promoted. It is against this background we have to consider the wide spectrum of corruption, not just in China, but also across the whole of Asia. The Structure of the Book One of the strengths of this book is that it does not adhere to the sanctity of Western beliefs — of the firm, organization or institution — with respect to 'corruption'. Rather, it reviews the tenets underpinning this activity that ought to lead to a lessening of corruption however promoted in all nations; it then goes on to review specifically how this may take place in Asia from the viewpoint of specialists in Asian matters.

Corruption

and Its Measures

17

Many management theorists spend a great deal of time refining their analyses of trade effects, for instance, on how Foreign Direct Investment (FDI) and other financial support is helping a country or commercial sector to grow and reach out to the global trade that is apparent in several economic sectors. There are also many multinational enterprises which are studied, in depth, in order to ascertain how they modify regional and national economies through their involvement in local or national processes in developing countries. These investigations become well cited Case Studies. However these analyses often miss the [often] enormous cash flows predicated upon corrupt practices. We might say therefore that the analysis of the upperworld, in omitting the distortions arising from the underworld, yields a biased view of 'best practice' and/or exemplary performance. This book illustrates the breadth of these distortions, notwithstanding the frequent avowals of national leaders that they are stamping out black (or gray) practices in their countries. Part 1: An Introduction

Chapter 1 by John Kidd has noted that no country is free and blameless in this debate — developed countries' organizations and their managers are not exempt, but they are in general less corrupt than their counterparts in developing nations. However, as the developed world is looking to Asia as a vast marketplace in the near-term future, it is pertinent to review the interaction of Occidental and Oriental business methods, and take cognizance of their ethics and their corruption management practices. Very many governments have Charters and Ministries acting against corruption and many are signatories of the OECD charter against corruption. All have official statements to make on how they are combating corruption in their country... but observers say otherwise. Earlier, this very chapter by way of an introduction has noted that corruption is widespread and that there are several measures that may be employed to gain an appreciation of its magnitude before making an alliance contract in a target country.

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John B Kidd & Frank-Jurgen Richter

Part 2: Combating Corruption, Money Laundering and Crime In Chapter 2, Enery Q u i n o n n e s writes u p o n the development of the OECD studies o n corruption that led to the convention against c o r r u p t i o n . H e r e i n she begins by informing us of the core of countries, only 30 or so, which have signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. To get to this position she outlines the growing awareness by institutions, ministries, firms a n d individuals of the cost of corruption a n d its disrupting effects. T h a t these official activities have b e e n enacted only t h r o u g h the 1990s seems to be an indictment of m o d e r n society — b u t it is t h r o u g h these measures we h o p e we can make global progress. Peter Lilley in C h a p t e r 3 illustrates the vast reach of the money l a u n d e r i n g s c h e m e s globally a n d in p a r t i c u l a r in Asia, while elsewhere it is estimated by US law enforcement that West Africans a n d Southeast Asians using West African Couriers wash s o m e $500,000 on a weekly basis (Lilley, 2000). H e notes that in May 2001 the Malaysian Finance Minister, Daim Zainuddin c o m m e n t e d that the washing of dirty money gives "wicked legitimacy to proceeds acquired t h r o u g h d r u g trafficking, extortion a n d arms smuggling". Thus we n e e d to counter the ease by which this process is conducted, since corruption raises the costs of contracts whilst further debasing the poorest in our societies. H e also notes the corrupt e n v i r o n m e n t in Indonesia is immediately a p p a r e n t t h r o u g h its escalating moneyl a u n d e r i n g problem. Their general picture is saddeningly familiar, with o n e critical factor being that their national police lack sufficient resources, training or expertise to tackle the serious problems that they face. In Chapter 4 Leslie Palmier notes... 'the State, when weak, is perceived to be partial, so traditional loyalties are aroused, which f u r t h e r weaken t h e State'. It is c u s t o m a r y to invoke ' m a r k e t pressures' to explain western commercial behavior, while 'peer group pressures' are used to explain individual activity. Similarly, it would s e e m a p p r o p r i a t e to i n c l u d e ' t r a d i t i o n a l g r o u p p r e s s u r e s ' in

Corruption

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19

analyzing corruption in developing countries, in Asia as elsewhere. However, such pressures are perhaps best seen as permissive a n d supportive, n o t a determinant. More i m p o r t a n t is the presence of opportunities, which usually m e a n s the i n d u c e m e n t of money. T h e m o r e of it that passes t h r o u g h the h a n d s of State officers in a weak State, the m o r e will stick to their fingers. T h u s w h e n law a n d order break down and are not quickly restored, the State is perceived to be partial towards the lawbreakers. H e also presents the case of Indonesia. In Chapter 5 Anatoly Korchagin & Alex Ivanov offer us a view from Vladivostok in Eastern Russia — an i m p o r t a n t portal between Asia a n d E u r o p e (though i n d e e d far from Western E u r o p e ) . They suggest that Russia (the government) itself is gradually b e c o m i n g the fiction, because the people, out of their practical n e e d to survive, go over to an illegal way of life. This threat is so real that now the "Russian mafia" (to p u t it exactly — organized crime) is described as a serious actor in the reshaping of the world's economy a n d territories — in all countries, especially in the developing ones. Strictly speaking, there is n o t h i n g strange a n d unusual in this — it is simply the r i p e n i n g of the harvest that h a d b e e n planted d u r i n g the process of breaking down Russia. But even h e r e — in the Wild East, so to speak — they emphasis, as a conclusion, that it is possible to specify that the systemic character of corruption in a m o d e r n society should be opposed by a systemic counteraction — so with c o u n t e r m e a s u r e s in place we s h o u l d see a g r a d u a l r e t u r n to 'normality'. In Chapter 6 Hock-Beng C h e a h notes, from a quotation in 1999 by the US Customs: that IPR theft hurts n o t only o u r national economy, b u t o u r world economy as well. This crime is already costing industry approximately 200 billion [US] dollars... a year in lost revenue a n d nearly 750,000 j o b s . . . O u r investigations have shown that organized criminal groups are heavily involved in tradem a r k c o u n t e r f e i t i n g a n d copyright piracy. They often use t h e proceeds obtained from these illicit activities to finance other, m o r e violent crimes.

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C h e a h goes o n to state that TRIPs [the A g r e e m e n t o n TradeRelated Aspects of Intellectual Property Rights] is being used as a protectionist instrument allowing large corporations use intellectual property rights (IPR) to protect their markets, a n d to prevent c o m p e t i t i o n . An excessively high level of intellectual p r o p e r t y protection required by TRIPs has shifted the balance away from the public interest, towards the monopolistic privileges of IPR holders. This u n d e r m i n e s the sustainable development objectives that u n d e r p i n [the E u r o p e a n Union's] development policies that are being generally p r o m o t e d in Asia t h r o u g h the W T O . H e goes o n to discuss theft of software IPR noting the available evidence suggests that overall in 2000 approximately one-quarter of the total global revenue losses occurred in Asia. H e concludes, n o t i n g the progression from stage 1 to stage 2 of the IPR laws, that... even in the somewhat arcane a n d esoteric realm of IPR there are serious developments that have the potential to arouse grave concerns a n d resentments in Asia, in the USA a n d elsewhere. In Chapter 7 Francois-Yves D a m o n concentrates o n the legal aspects of corruption as n o t e d in official reports of convictions for corrupt practice. H e suggests that corruption is o n e of the biggest political a n d economic challenges that face China in the twentyfirst century. Conservatively it is estimated to cost some 13-16% of China's GDP — thus corruption is a h u g e economic loss a n d is a social pollution. It contributes to problems such as environmental d e g r a d a t i o n , social a n d political instability, a n d the decreased credibility of government officials. According to surveys c o n d u c t e d in 1998 a n d 1999, the Chinese people viewed corruption as the n u m b e r o n e factor contributing toward social instability. However, in 2000, fearful of the i m m i n e n t pains of economic reform, the Chinese people n a m e d u n e m p l o y m e n t a n d the fear of being laidoff, ahead of corruption, as the primary sources of social instability (Hu, 2001). It is h o p e d that this grass-roots fear does n o t detract from the higher officials search a n d reaction against corruption since the latter evil may well enforce the ill-rest due to unemployment.

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Part 3: National Comparisons throughout South and East Asia Dominic Sculli in Chapter 8 leads us immediately to a consideration of 'culture'. H e notes o n e should n o t b e looking for a single p o i n t in t h e m u l t i - d i m e n s i o n a l cultural space, b u t r a t h e r trying to eliminate certain aspects a n d thus h o p e that a small e n o u g h space remains in which the core of Asian cultural values abides. However, we have to recognize that the Asian continent takes in a large part of Russia a n d even in a sense, the Middle East, including Israel. Also included in the region there is the large a n d diverse Indian subcontinent a n d many Islamic countries, stretching as far southeast as Indonesia a n d the southern Philippines. Therefore, in the context of this chapter, 'culture' essentially refers to the culture of China a n d to that of some of its neighbors, particular those with some historical influence from China, such as J a p a n a n d Korea. Cross-cultural research into different m a n a g e m e n t styles attempts to d e t e r m i n e the effect of the level of industrialization a n d also the role that culture plays — the general finding is that the m a n a g e m e n t style is a function of t h e level of industrialization, b u t is also t e m p e r e d by cultural characteristics. T h e same question can b e posed c o n c e r n i n g corruption: to what extent is it d e p e n d e n t o n the level of industrialization a n d to what extent is it d e p e n d e n t o n culture? H e concludes that certain characteristics of Asian culture may give the impression that it is m o r e p r o n e to corruption, yet the proposition that a firm link exists between culture a n d corruption seems untenable. However, corruption will b e c o m e m o r e organized a n d possibly m o r e efficient w h e n a clear authority [governance] is established o r w h e n the rule of law is m o r e strongly enforced — which inevitably occurs as a nation state develops a n d b e c o m e m o r e sophisticated. Chapter 9 by Gilbert Etienne illustrates a wide view. H e has traveled extensively in Asia over a long period a n d thus has formed a distinct view u p o n the different reactions to corruption, country by country. In particular h e focuses u p o n the economy of seepage a n d leakage that goes beyond corruption. H e suggests the p r o b l e m seems to have three tiers: misallocation ( t h r o u g h weak administra-

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tions a n d infrastructures for instance), general loss of revenue (due to fraud), a n d simple corruption (including malpractice). Clay Wescott in Chapter 10 allows us to reflect o n modern-day corruption in Asia t h r o u g h the anti-corruption campaigns being enacted in four countries in South East Asia — h e examines the progress of the authorities in Cambodia, Laos, Thailand a n d Viet Nam as they set u p effective institutions to fight corruption in the public sector. H e makes comparisons by drawing o n governance assessments recently carried o u t by the Asian Development Bank. Anti-corruption efforts in these four countries reveal b o t h similarities a n d d i f f e r e n c e s , m a k i n g t h e s u b - r e g i o n i n t e r e s t i n g for comparative analysis of the causes a n d consequences of different approaches. Thus h e makes r e c o m m e n d a t i o n s b o t h for improving ongoing efforts at the country level, a n d for j o i n i n g forces at the regional level. In Chapter 11 by S c h r a m m & Taube we find a detailed study of guanxi. They examine the p h e n o m e n o n of corruption in China using the instrument of 'the new institutional economies'. Their goal is n o t to illuminate the relationship between the parties involved in corruption using a principal-agent analysis. Instead, their analysis focuses o n the institutional framework for corrupt transactions in China whose goal is to prevent opportunistic behavior of o n e of the involved parties. In this respect, they will examine especially the relationship between corruption a n d the guanxi networks; and, in addition, how they are affected by the (non-) existence of a functioning legal system. Moving o n we see in Chapter 12, by Moon & McLean, that Korea has h a d a positive stance against corruption from 1960 w h e n General J H Park seized power. Since that time, especially in recent years, they have realized that their rapid growth in their economy has rested u p o n u n s u r e foundations based o n corrupt practices. Corruption, they emphasis, is a multifaceted p h e n o m e n o n — it comprises many factors a n d c o m p o n e n t s : socio-economic, cultural, politico-systematic, bureaucratic-administrative, psychological, a n d so on. This multifaceted aspect of corruption must be taken into account if anticorruption efforts are to succeed. They conclude that

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it will require a gradual, evolutionary process of massive cultural change which must be widely supported by the populace a n d those in l e a d e r s h i p . W i t h o u t s u c h a c o m m i t m e n t , t h e n e g a t i v e consequences of corruption will continue to i m p e d e South Korea's economic, political, a n d moral development. C h a p t e r 13 by Chat-Uthai & Mclean presents details of the situation in Thailand. T h e 2000 Corruption Perception Index (see http://www.transparency.org) has given Thailand a trust status that has deteriorated from the 34 t h rank (of 41 countries) in 1995 to a tied-for 60 t h rank (of 90 countries) in 2000. T h e Thai views of corruption are reflected in neat phrases which are used to describe the act of consuming the public wealth: "hot tea fees," "eating along the river tide," "gifts of good will," a n d the famous "white buffet" cabinet. This chapter explores how historically the Thai public has a c c o m m o d a t e d corruption, a n d it examines the range of corruption that now exists. It also provides r e c o m m e n d a t i o n s for anticorruption activities.

Part 4: Ethical Futures T h e chapters in the earlier sectors may have painted too gloomy a picture, so we will now review, briefly, what might be d o n e to help corrupt nations. In passing it would be quite fair to point o u t how the less corrupt nations (generally the developed ones) might p u t in place better filters a n d practices — perhaps to lead by example? We would conclude that the western managers lead, n o t by shouting, "look how good we are" — b u t by employing a degree of modesty, which might be well appreciated by Asian managers. Taek Kim in Chapter 14 describes the techniques a n d instrumental mechanisms for the control of corruption, casting light o n c o r r u p t i o n from many different viewpoints. Focusing o n four countries in Asia — H o n g Kong, Singapore, Malaysia a n d Korea — he considers the anti-corruption infrastructures a n d the corruption prevention systems of the first three countries in o r d e r to c o m m e n t on the situation in Korea. To gather primary evidence, the a u t h o r visited the I n d e p e n d e n t Commission Against Corruption (ICAC) in

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H o n g Kong a n d the C o r r u p t Practices Investigation Bureau (CPIB) in Singapore wherein their legislative instruments a n d their research data were the main focus. Finally, Lionel Stapley in Chapter 15 says that his p u r p o s e is to explore in general terms the dynamics c o n c e r n i n g the relationship between the 'corrupter' a n d the 'corrupted', a n d to help in the development of cutting edge practices that will reduce the chances of seduction into bribery. N o matter which society we are referring to we can be sure that bribery is c o n d e m n e d because of its i n h e r e n t inequity: yet, when a bribe is expected as part of a transaction it still presents us with a considerable moral dilemma. What, then, we might ask is right a n d ethical a n d just? By taking action to change the Asian culture to o n e where c o r r u p t behavior is internalized as unacceptable, we can directly influence the corrupter. In addition, those in the West can develop strategies a n d practices to ensure that those from the West who are likely to be seduced into corruption are sufficiently aware of, a n d able to control a n d m a n a g e their emotions, so that they will n o t act in corrupt ways.

References Baydoun N, Nisimura A & Willed R (1997) Reflections on the relationship between culture and accounting in the Asia-Pacific region. In: Baydoun et al. Accounting in the Asia-Pacific Region. New York, Wiley: 400-426. Chan KB & Tong CK (2000) Singaporeans doing business in China. In: Chan KB (ed.), Chinese Business Networks: State, Economy and Culture. Singapore, Prentice Hall: 71-86. Child J, Chung L, Davis H & Ng SH (2000) Managing Business in Mainland China: A Guidebook. Hong Kong, Hong Kong Chamber of Commerce. Condon P (2001) Report on Corruption in International Cricket. London, Anti-Corruption Unit, International Cricket Council, April: 75. Donleavy G (1995) Feudalism, ethics and postmodern company life. In: Stewart S & Donleavy G (eds.), Whose Business Values? Some Asian and Cross-Cultural Perspectives. Hong Kong, Hong Kong University Press. Gray SJ & Vint HM (1995) The impact of culture on accounting disclosures: Some international evidence. Asia-Pacific Journal of Accounting, 2: 3 3 43.

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Gray SJ (1996) International comparisons of business performance: measurement and disclosure issues. International Review of Business, 1(1): 1-15. Hofstede G (1980) Culture's Consequences: International Differences in Workrelated Values. London, Sage Publications. Hofstede G (1991) Cultures and Organisations: Software of the Mind. London, McGraw-Hill. Hu A (2000) Corruption and anti-corruption strategies in China. Presentation to the Carnegie endowment for international peace symposium, Corruption in China, Centre for China Study, Chinese Academy of Sciences, Qinghua University, February 13 th (http://www.ceip.org/files/ events/AngangHuEvent.asp?p=l). Kidd JB & Richter F-J (2002) Governance in Asia. Forthcoming. Kogut B & Singh H (1988) The effect of national culture on choice of entry mode. Journal of International Business Studies 19 (3): 411-432. Lilley P (2000) Dirty Dealing: The Untold Truth about Global Money Laundering. London, Kogan-Page. Lou Y (2000) Guanxi and Business. Singapore, World Scientific. Phillips LD & Wright CN (1977) Cultural differences in viewing uncertainty and assessing probabilities. In: Jungermann H & de Zeeuw G (eds.), Decision Making and Change in Human Affairs. Dordrecht, D. Reidel Publishing. Pyatt R, Ashkanasy NM, Tamaschke R & Grigg T (2001) Transitions and Traditions in Chinese Family Businesses: Evidence from Hong Kong and Thailand. In: Kidd JB, Li X & Richter F-J (eds.), Advances in Human Resource Management in Asia. London and New York, Palgrave Press: 80-104. Salter SB & Niswander F (1995) Cultural influences on the development of accounting systems internationally./. Int. Business Studies, 26(2): 379398. Walsh J (1998) A World War on Bribery. Time, 22 nd June. Wu Wie-Ping (2000) Transaction cost, cultural values, and Chinese business networks: An integrated approach. In: Chan KB (ed.), Chinese Business Networks: State, Economy and Culture. Singapore, Prentice Hall. Zarzeski MT (1996). Spontaneous harmonisation effects of culture and market forces on accounting disclosure practices. Accounting Horizons, 10: 18-37.

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Chapter 2

The OECD Convention and Asia

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Introduction After years of discussing the pros a n d cons of various approaches to fight c o r r u p t i o n in business transactions, the world's largest exporting countries agreed on, 21 s t November 1997, the draft text of a legally binding convention b a n n i n g bribes to foreign public officials. With the participation of 30 OECD countries a n d 4 nonOECD countries, the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (generally known as the "Convention") laid the foundations for o n e of the first a n d most significant steps to combat international bribery. At present, all b u t o n e of the original 34 signatories have ratified the Convention, a n d 31 have national laws making it a crime to bribe a foreign public official in o r d e r to obtain or retain international business (see Table 1). Many c o m m e n t a t o r s welcomed the treaty as a l a n d m a r k in international co-operation; others have b e e n m o r e critical, noting its rather limited scope. As a so-called "supply-side" agreement, the Convention is aimed at the person who offers, promises, or pays a bribe, rather than the person who solicits or accepts the bribe.

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Country

1. Iceland

2. Japan 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34.

Germany Hungary United States Finland United Kingdom Canada Norway Bulgaria Korea Greece Austria Mexico Sweden Belgium Slovak Republic Australia Spain Czech Republic Switzerland Turkey* France Brazil* Denmark Poland Portugal Italy Netherlands Argentina Luxembourg Chile* New Zealand Ireland

Date of deposit of instrument of acceptance, approval or ratification

Date of examination by the working group

17 August 1998 13 October 1998 10 November 1998 4 December 1998 8 December 1998 10 December 1998 14 December 1998 17 December 1998 18 December 1998 22 December 1998 4 January 1999 5 February 1999 20 May 1999 27 May 1999 8 June 1999 27 July 1999 24 September 1999 18 October 1999 14 January 2000 21 January 2000 31 May 2000 26 July 2000 31 July 2000 24 August 2000 5 September 2000 8 September 2000 23 November 2000 15 December 2000 12 January 2001 8 February 2001 21 March 2001 18 April 2001 25 June 2001 Not Yet Deposited

October 1999 October 1999 April 1999 October 1999 April 1999 July 1999 December 1999 July 1999 April 1999 July 1999 July 1999 July 1999 December 1999 February 2000 October 1999 October 1999 February 2000 December 1999 March 2000 March 2000 February 2000 December 2000 December 2000 February 2001 April 2001 February 2001 April 2001 February 2001 June 2001

*As of 15 August 2001, these countries have not yet enacted implementing legislation.

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The "demand side" of bribery while not covered by the Convention, is addressed by other OECD initiatives that are described later in this article. As it stands, the countries bound by this Convention together account for 70% of world trade and 90% of foreign direct investment, and the reach of the Convention extends beyond the borders of these countries to the bribery of officials of nonparticipating countries. Most significantly, its landmark status is due, in large measure, to the multilateral process created by the Convention to control and monitor compliance. The Convention's rapid entry into force 1 and ratification by its members belies the long and difficult international discussions preceding its adoption. A failed attempt in the United Nations in the 1970's to negotiate an agreement against illicit payments did not auger well for international co-operation efforts in this area. However, the United States decided to take unilateral action when bribery scandals involving major American companies and officials from foreign countries revealed the extent of corruption in international business dealings. The United States' Congress adopted the Foreign Corrupt Practices Act (1977) that prohibited US companies and individuals from bribing foreign officials as well as foreign political parties or party officials to obtain or retain business. The US business community complained that the Act placed American companies at a substantial competitive disadvantage vis-a-vis companies from other countries that had no such restrictions. The OECD agreed to provide a forum where this debate among the US's major trading partners could take place and work began in 1989 with an inventory of country laws on corruption (Sacerdoti, 2000). Initially, many countries were reluctant to follow the US lead on the grounds that this might be perceived as unwarranted interference in the internal affairs of other countries. These, and other justifications for inaction, were swept away by the outcry caused by major corruption scandals in the early 1990s. Public awareness of corruption was also heightened by a growing body of economic 1

The Convention entered into force on 15 th February 1999.

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information revealing the consequences of corruption (Mauro, 1997), the causes of corruption (Cartier-Bresson, 1995), as well as the impact particularly o n p o o r a n d u n d e r d e v e l o p e d nations (Eigen, 1994). OECD countries began to accept responsibility for their part of the corruption, which even if taking place abroad, h a d negative impact on their own trading opportunities. It was clearly the time to abandon old double standards a n d find ways of co-operating o n multilateral actions to clean u p international business transactions. Reassessing the real cost of corruption has n o t b e e n limited to developed countries. T h e Asian financial crisis that began in July 1997 forced a r u d e awakening in many Asian-countries w h e r e complacency towards c o r r u p t i o n h a d b e e n sustained by strong economic growth a n d high levels of investment (Sullivan, 1999). T h e crisis revealed n o t only the structural weaknesses of some of these economies, but also the contributing role played by corruption, especially cronyism, in the crisis. This led several Asian countries to a d o p t anti-corruption reforms, including measures p r o m o t i n g accountability and transparency (Quah, 1999). Only two Asia countries take part in the Convention b u t several such as Singapore a n d H o n g Kong have b e e n signaled o u t as models for anti-corruption efforts in the region. Hopefully, the impact of the OECD anti-bribery instruments, the Convention a n d also the two related Recommendations 2 , will reduce the flow of corrupt payments worldwide by e n d i n g large corruption payments which occur in all countries (Pieth, 2000). T h e OECD action has, a n d should continue to catalyze anti-corruption efforts in o t h e r regions a n d organizations. T h e Organization of American States, the Council of E u r o p e , the E u r o p e a n Union, the United Nations, etc. are active a n d i m p o r t a n t players in the fight a n d their m e m b e r s are part of an ever-growing n u m b e r of c o u n t r i e s t h a t are striving to c o m e to grips with all types of corruption. While n o t h i n g can substitute for well-developed a n d

2

The 1996 OECD Recommendation on the Tax Deductability of Bribes to Foreign Public Officials and the 1997 Revised OECD Recommendation on Combating Bribery in International Business Transactions.

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implemented national programmes, joining forces through international or regional mechanisms such as that under consideration by the Asia-Pacific anti-corruption initiative described in Part 4 of this article, can be an effective way to support national reform and engage all segments of society. OECD Anti-Corruption Efforts The OECD has long held center stage in the battle against international bribery and corruption. Using its comparative advantage of building consensus on major issues, such as international corruption, through common interests and shared objectives, it helped forge one of the first international instruments to fight supply side bribery. The Convention represents the result of an ambitious undertaking that began with the development by the OECD of various instruments — the Recommendations of 1994, 1996 and 1997 — which culminated with the entry into force of the Convention in 1999. While the Convention focuses on the supply side of bribery, the demand side of the transaction is not neglected. It is recognized that well-functioning institutions and systems that promote ethical conduct in the public sector are needed to ensure integrity and fight corruption on the part of public officials. The OECD Public Management Committee has identified the institutions, systems, tools, and conditions that governments use to p r o m o t e ethics in the public sector — which are die necessary elements and functions of a sound ethics infrastructure. There is also a checklist and a set of principles to provide guidance for public managers on how to review their ethics management systems. The 1998 Recommendation on Improving Ethical Conduct in the Public Service builds on these ethics management principles (see www.oecd.org/puma/ gvrnance/ethics). Codes of conduct, across the board for all of the public sector, or by agency, can play a vital role in making clear the standards of behavior that are expected.

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The Anti-bribery Instruments

The overall purpose of these instruments is to prevent bribery in international business transactions by requiring countries to establish the criminal offence of 'bribing a foreign public official', and to have in place adequate sanctions and reliable means for detecting and enforcing the offence. They also include non-criminal rules for prevention, overall transparency and co-operation between countries. In addition, countries that join the Convention are also required to deny the tax deductibility of such bribes. This section looks at the main provisions of this treaty against bribery in international business transactions, as well as the accompanying non-binding recommendations. The Convention

The Convention is the principal tool for fighting bribery of foreign public officials. It requires that each party establish the criminal offence of bribery of foreign public officials. It further requires countries to establish the liability of enterprises ("legal persons") for the offence so that companies, and not just individuals, can be held accountable for bribery. The additional provisions in the Convention chiefly reinforce these requirements by provisions — to ensure its effective application and enforcement. The Convention is flexible in that parties may adapt the requirements according to their individual legal systems as long as the end result is the same (principle of functional equivalence). The offence of bribing a foreign public official must be established in the following manner: • It must apply to all persons, including enterprises and other legal entities. • It must apply to the offering, promising or giving of a bribe. It is an offence regardless if the offering, etc. is done through an intermediary and regardless if the advantage is for a foreign public official or a third party.

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• It must apply regardless of the form that the bribe takes. Thus the offering of an advantage that is tangible or intangible as well as pecuniary or non-pecuniary must be prohibited. • It must prohibit bribery for the purpose of obtaining or retaining "business or other improper advantage in the conduct of international business". This is not limited to the procurement of contracts, but also includes the obtaining of regulatory permits and preferential treatment in relation to taxation, customs and judicial and legislative proceedings. It is irrelevant that the person concerned was the best-qualified bidder or could properly have been awarded the business. And it is an offence irrespective of the value of the advantage, its results, perceptions of local custom, the tolerance of such payments by local authorities, or the alleged necessity of the payment. • A "foreign public official" must include any person holding a legislative, administrative or judicial office of 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 or agent of a public international organization. This definition is part of the Convention and countries therefore need not look to the law of the country where the bribery took place to determine whether the person is a "public official" or not. Each Party must also satisfy the following requirements under the Convention: • Each party must establish effective, proportionate and dissuasive criminal penalties for the foreign bribery offence. Where a Party's legal system does not apply criminal responsibility to enterprises, they shall be subject to effective, proportionate and dissuasive non-criminal penalties for the offence. • Each party must establish its jurisdiction over the foreign bribery offence when the offence is committed in whole or in part in its territory. Where a Party has jurisdiction to prosecute its nationals for offences committed abroad, it shall establish such

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jurisdiction over the foreign bribery offence according to the same principles. • Where a party has established a money laundering offence in relation to the bribe and/or proceeds of domestic bribery, it shall do so on the same terms for foreign bribery. • Each party is required to prohibit certain accounting and auditing practices that facilitate the concealment of foreign bribery. • Each party is required to provide prompt and effective legal assistance to other Parties seeking assistance in the investigation and prosecution of foreign bribery offences. In addition, the bribery of a foreign public official shall be deemed to be an extraditable offence under the laws of the Parties and the extradition treaties between them. The Recommendations Reinforcing the Convention, the recommendations aim at increasing transparency and accountability and eliminating tax deductions for bribe payments. The 1997 Recommendation requires that countries introduce sound internal company controls, including standards of conduct and controls applicable down to the operational level. In the area of public procurement, companies responsible for bribing foreign public officials should be suspended from public contract bids. Countries undertake to include anti-corruption provisions in bilateral aid-funded procurement and to work closely with development partners to combat corruption in all development co-operation efforts. Until recently, many countries accepted the bribery of foreign public officials as a "normal" cost of doing business. Companies doing business with foreign countries claimed that bribe payments were necessary in order to be favorably considered for the awarding of contract — and so previously, by allowing tax deductions for such bribes, several governments were perceived as condoning this practice.

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Since agreeing to the 1996 Recommendation o n the Tax Deductibility of Bribes, almost all OECD countries now disallow such tax deductibility thus sending a strong signal that bribery is n o longer an acceptable business practice. Besides serving as a deterrent, nontax deductibility is a politically visible symbol of the c o m m o n international c o m m i t m e n t to combat bribery.

The Private Sector in Support of Anti-Corruption Efforts Reducing the supply of bribes requires m o r e than criminalizing the act of bribing a foreign public official. Businesses themselves must play a role a n d address the practice internally by changing the corporate culture that enables it to continue. To provide businesses with guidance in this regard, the OECD has revised the 1976 guidelines for multinational enterprises to include a new chapter on measures that enterprises should take to prevent the furnishing as well as the solicitation of bribes. In addition, the OECD principles of corporate governance that aim, in part, to improve disclosure a n d transparency in financial as well as o t h e r matters, can create an e n v i r o n m e n t that discourages bribery.

The OECD Guidelines for Multinational Enterprises T h e OECD's guidelines for multinational enterprises include rules for combating bribery that address the supply a n d d e m a n d sides of the bribery transaction (www.oecd.org/daf/investment/guidelines). They focus o n the bribery of public officials a n d the employees of business partners, as well as preventing the channeling of payments t h r o u g h the use of subcontracts, purchase orders a n d consulting agreements to public officials, employees of business partners, relatives a n d business associates. In addition, the guidelines address the issue of r e m u n e r a t i o n of agents. Further provisions require enterprises to a d o p t managem e n t control systems, including financial a n d tax a n d auditing practices, for discouraging bribery a n d corrupt practices, a n d

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requires them to promote public and employees' awareness of their programmes and policies in this regard. The guidelines also intend to prevent illegal contributions by companies to candidates for public office, political parties and other political organizations. Enterprises are urged to disclose political contributions. Some companies have established their own anti-corruption strategies, including the adoption of codes of ethical conduct that include provisions concerning bribery and extortion. These codes express the companies' serious commitment to comply with international obligations to combat corruption and are intended to modify the corporate culture and attitudes of its employees to reduce the risk of corrupt behavior. They are often accompanied by management systems for monitoring and reviewing compliance. Their success in changing behavior depends, to a great extent, on support by top company management. The OECD Principles for Corporate Governance The five chapters of the corporate governance principles addressing shareholders' rights, the equitable treatment of shareholders, the role of stakeholders, disclosure and transparency and the responsibilities of the board, comprise basic core principles that should be part of any good corporate governance system (www.oecd.org/ daf/governance/principles). An economy characterized by high standards of disclosure and one in which members of corporate management are accountable to their boards and the boards are accountable to their shareholders — including minority shareholders — will be one where financial fraud and other forms of financial crime will be less likely to flourish. The Principles are primarily intended to assist governments as they pursue their own efforts to evaluate and refine their national legal, institutional and regulatory frameworks. The OECD and the World Bank are now engaged in a co-operative worldwide effort, together with regional development banks and bilateral donor countries, as well as private sector participants, to encourage

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corporate governance reforms, using the principles as a starting point and c o m m o n language for policy-dialogue. Regional corporate governance roundtables have b e e n established in Asia, Latin America, Russia a n d Eurasia with the co-operation of regional partners. These Roundtables have b e c o m e natural reference points in their respective regions a n d "white papers" identifying policy objectives a n d reform priorities are being drafted in Asia, Latin America a n d Russia. This entirely voluntary process of implementation is h e l p e d by the high international standing of the principles a n d the considerable incentives provided by the market for international capital. T h e inclusion of the principles of corporate governance in the World Bank's a n d the International Monetary F u n d (IMF) assessment a n d surveillance of financial sectors is expected to give further impetus to reform efforts.

Enforcement through Monitoring By agreeing to a d o p t national laws making it a crime to bribe foreign public officials, the signatories of the Convention took a decisive step towards injecting, for the first time in international business transactions, a sense of morality a n d fairness. But signing the Convention a n d even making it part of national law, will n o t d o m u c h to change ingrained patterns of corrupt behavior unless t h e r e is a c r e d i b l e way to m o n i t o r w h e t h e r g o v e r n m e n t s are abiding by their obligations. Fortunately, the Convention contains an enforcement mechanism that makes it o n e of the most effective tools to combat international bribery a n d corruption. Thus, a country that joins the Convention a n d adopts i m p l e m e n t i n g legislation will be subject to a rigorous review of its efforts to enforce the Convention. It is the responsibility of the OECD working g r o u p on bribery in international business transactions (the "Working Group on Bribery"), to d e t e r m i n e , in a first phase, w h e t h e r the i m p l e m e n t i n g legislation meets the standards set by the Convention (Phase 1). As part of a later phase (Phase 2), it will assess how well the country in question is applying the Convention in practice.

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Findings Each year, the OECD reports to the ministers of m e m b e r countries o n the status of implementation of the Convention. So far, the working g r o u p o n bribery has reviewed the implementing legislation of twenty-nine countries 3 . In its latest report, the working g r o u p found that most countries have d o n e a satisfactory j o b of implem e n t i n g the requirements of the Convention (see www.oecd.org/ d a f / n o c o r r u p t i o n ) . Since Phase 1 aims to ensure that countries have correctly transcribed elements of the offence into national law, in certain cases Ministers have asked countries to take remedial action whenever significant deficiencies have b e e n found. Because the Convention works within a country's existing legal system, differences in the way countries have i m p l e m e n t e d the Convention are to be expected. Nevertheless, the Working Group's role is to ensure that there are n o t major discrepancies that would u n d e r m i n e the equal application of the Convention by all parties. It is particularly i m p o r t a n t that in their national laws, countries d o n o t create loopholes inadvertently or introduce provisions that might lead to inconsistent application. For this reason, whenever problems are identified, the Working G r o u p o n Bribery may r e c o m m e n d that countries consider changes in legislation to conform m o r e fully to the requirements of the Convention. Phase 2 will go even further to d e t e r m i n e how countries are applying the Convention in practice. To d o so, the Working G r o u p will look carefully at such issues as i m p e d i m e n t s to successful investigation, a n d the prosecution of foreign bribery cases a n d the adequacy of statutes of limitations. It will also d e t e r m i n e w h e t h e r political considerations have improperly influenced decisions to prosecute. Phase 2 will examine m o r e closely how countries are i m p l e m e n t i n g the non-criminal aspects of the Convention a n d the 3

Twenty-one countries were reviewed between April 1999 and May 2000, and an additional seven countries were reviewed May 2000 and May 2001. The individual country reports are available on the OECD web site. An additional country, New Zealand, was reviewed in June 2001 but this report is not yet available on the website.

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Recommendations, particularly those relating to accounting and auditing requirements to prevent bribery payments. The Convention was by no means the end of road for OECD anti-corruption efforts. Phase 1 and 2 may call for a re-evaluation of the existing instruments to ensure that there are no loopholes or gaps. Countries are also committed to examining other areas that relate to corruption in international business such as bribery to foreign political parties and bribery by foreign subsidiaries, to assess the extent of the problem and identify the most effective way to address them.

Does Peer Pressure Work? The Convention does not contain a dispute settlement mechanism nor does it foresee sanctions for parties that do not live up to their obligations. Thus one may query whether the "soft" approach of pressure by peers is sufficient to guarantee good behavior. So far we see the process is proving successful, if somewhat slow due to local parliamentary procedures that must be respected. Quite a few countries, including Japan and the United Kingdom have announced changes in their national laws largely as a result of the recommendations made by the OECD in reviewing their current legislation. The Working Group on Bribery is set to have another look at these and other recent measures taken by countries in response to their phase 1 reviews. The criticism of peers is made even more forceful by public scrutiny. Making country reports available to the public, including publication on the OECD's website, increases public pressure to effectuate changes. Civil society has taken a very active interest in the results of these evaluations and that plays a key role in maintaining public vigilance over government commitments in this area. Globalizing the Fight against Corruption Since its entry into force, the Convention has attracted increasing attention from countries that are not members of the OECD. The

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Convention is open to non-members and four non-OECD countries presently take part: Argentina, Brazil, Bulgaria, and Chile 4 . Many other countries have demonstrated an interest in associating themselves with the OECD fight against corruption. While recognizing that they have particular responsibility as major trading countries, OECD Members are aware that it is essential in an increasingly interdependent world, that all countries share responsibility for combating bribery. OECD governments therefore are keen to discuss ways to improve the effectiveness of the agreed international standards with all interested parties. A country that expresses a specific desire to join the Convention must first become a member of the working group on bribery. To do so, it must apply formally to the organization. In deciding whether to invite an applicant to join, other members of the Convention may well want to assess how the country interested in joining measures up against an objective set of criteria. These criteria include whether the applicant is a "major player" and whether the association will bring "mutual benefit". In applying these criteria, certain essential economic, institutional and legal factors will be examined, including a country's participation in sensitive sectors such as aviation or defense, and its existing legal framework to combat domestic corruption. A positive evaluation of a country's request may result in participation as an observer for an initial period of time or as a full participant. Not all countries engaged in the fight against corruption will join the Convention and the Working Group. They may decide that other regional initiatives are also compatible with their aims or they may well wish to improve links and co-operation without formal participation. This opens wide opportunities for additional regional events and the other sorts of dialogue and communication that the OECD organizes. The following section will briefly describe the regional dialogue with the countries of Asia-Pacific that is

4

Slovenia has been invited to accede to the Convention but as of 15 August 2001 has not yet deposited an instrument of accession with the OECD Secretary-General.

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leading to concrete anti-corruption action being taken in many Asian countries.

The Asia-Pacific Anti-Corruption Initiative In many countries of the Asia-Pacific region, corruption exists at all levels of dealings, between public officials a n d business people, as well as ordinary citizens. In Asia as elsewhere, the consequences of corruption o n economic development are particularly pernicious. Three years ago, the Asian Development Bank (ADB) a n d the OECD l a u n c h e d the regional forum o n combating corruption in Asia a n d Pacific economies. T h e idea of the F o r u m e m e r g e d from a m e e t i n g in Manila in September 1999 o n Combating Corruption in Asian and Pacific Economies that was sponsored by the OECD a n d the ADB. T h e meeting revealed a strong consensus to fight corruption o n several fronts a n d clearly showed that anti-corruption efforts in the Asia-Pacific region must engage all sectors of society. T h e forum identified some ways in which the different sectors could contribute to the fight against corruption: Public sector. G o v e r n m e n t measures to c o u n t e r corruption must be accompanied by law enforcement mechanisms, with a special role for the judiciary. Witness protection p r o g r a m m e s are also required to e n c o u r a g e reports of wrong-doing. Transparency can be e n h a n c e d t h r o u g h the establishment of competitive public p r o c u r e m e n t procedures a n d e n c o u r a g e m e n t of adoption of relevant international rules. Simplification of government procedures can help improve the conditions for international investment. Private sector and Trade Unions. Effective measures by business a n d trade associations can take many forms. These can be aimed at making company employees aware of corruption a n d educating t h e m against it through, for example, the development of codes of c o n d u c t a n d mechanisms to enforce the codes. In addition, it is effective to advocate of m o r e dialogue with public officials

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to propose a n d i m p l e m e n t reforms, including public sector reform, such as m o r e transparent p r o c u r e m e n t rules. Civil Society. T h e involvement of civil society a n d the media is a critical c o m p o n e n t in all anti-corruption strategies a n d can be particularly influential in i m p l e m e n t i n g civic education p r o g r a m m e s aimed at fostering an anti-corruption culture. These bodies help to relay policies by assuming greater responsibility for m o n i t o r i n g good governance a n d integrity in business a n d government operations. Regional a n d national networks for civil society as well as increased co-operation with international organizations can also help prevent the misuse of domestic resources. This m e e t i n g established the A D B / O E C D Initiative for Asia-Pacific whose objective is to support national a n d regional anti-corruption efforts. In a later follow-up m e e t i n g in the Republic of Korea, in D e c e m b e r 2000, it was a g r e e d to develop a r e g i o n a l anticorruption plan that would contain legally non-binding principles a n d standards for strengthening national a n d regional efforts to combat corruption. Presently, experts from nine Asian countries (Indonesia, J a p a n , Korea, Malaysia, Pakistan, People's Republic of China, the Philippines, Singapore, a n d Thailand) together with international organizations a n d others are drafting an action plan for Asia-Pacific. T h e plan would politically commit interested governments of the region to u n d e r t a k e actions to combat bribery a n d m o n e y l a u n d e r i n g a n d p r o m o t e public sector integrity based o n relevant international instruments a n d good practices, including the OECD anti-corruption instruments. Countries adopting the action plan would also agree to have their anti-corruption efforts regularly reviewed by their peers. At the same time, the international d o n o r community would pledge to strengthen country-capacities t h r o u g h technical co-operation. T h e draft action plan is now being circulated a m o n g ADB regional m e m b e r countries for their consideration of the possible endorsement at the next a n n u a l conference of the ADB-OECD anti-corruption

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initiative that will be hosted by the G o v e r n m e n t of J a p a n o n 2 8 - 3 0 November 2001.

Are Anti-Corruption Efforts Working? J u d g i n g from the plethora of international agreements, conferences, symposia, initiatives, scholarly articles, a n d the like, the rhetoric against corruption has certainly reached fever pitch. In the midst of this flurry of activity, o n e hardly dares to raise the question w h e t h e r the fight against corruption is actually being won. Certain type of information would suggest the contrary. T h e press continues to uncover almost daily allegations of corruption as well as instances of companies constituting illegal slush funds to pay bribes to foreign officials. Transparency I n t e r n a t i o n a l has published for the first time a bribe payers perception index in which some OECD countries, signatories to the Convention, are listed. In its C o r r u p t i o n Perception I n d e x of 2001, despite the advances m a d e by some Asian countries, still quite a few are represented in the b o t t o m half of the index. While this serves a vital purpose of keeping attention focused o n the n e e d to fight corruption, there is n o conclusive evidence proving that the international initiatives of the last few years, c o m b i n e d with a growing n u m b e r of countries i m p l e m e n t i n g comprehensive anticorruption strategies, are n o t having the desired effect of reducing the incidences of corrupt or illicit behavior. Perceptions change in t h e wake of legal a n d institutional c h a n g e s , which may n o t b e immediately apparent, a n d which take time to deliver "hard" results. This a u t h o r believes that m o r e time is necessary before final j u d g m e n t . N o o n e would dispute the fact that there has b e e n a seachange over the past fifteen years in governments' a n d international organizations' willingness to admit to the pervasiveness of corruption a n d to confront it head-on. Fortunately, n o o n e subscribes to the discredited theory that corruption brings some economic benefits, notably by way of cutting down bureaucratic decision-making. T h e economic evidence of the staggering cost of corruption a n d its

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impact on development has mostly demolished complacent attitudes towards corruption. But if heightened public awareness and increasing in-tolerance of corruption are more evident today than a decade ago, when will evidence emerge that the anti-corruption initiatives are beginning to bite? For national and international efforts such as those of the OECD Convention to bear fruit, certain essential elements are needed: The first element is strong political leadership. Collectively, through international or regional programmes, and individually, countries must provide political leadership demonstrating their commitment and ability to affect change. A second element is effective enforcement that includes a consistent and fair application of sanctions against wrongdoers. Countries must allocate sufficient resources to investigate and prosecute cases of alleged corruption. Openness to public scrutiny is the third element. By allowing public oversight and participation that includes the monitoring of countries' p e r f o r m a n c e vis-a-vis their commitments or obligations, governments can help build the confidence and trust in their citizenry that will begin to change perceptions. The foundations of anti-corruption strategies are mostly in place — although on a national and often regional level more can be done to develop, implement, and enforce these strategies. Especially important for Asian countries where p u b l i c / private partnerships are weak or lacking, governments need to work closely with the private sector to fully engage them as stakeholders in anti-corruption programmes. Company codes of conduct and compliance schemes, as well as improved corporate governance, can go a long way in shaping, or re-shaping, attitudes about acceptable business conduct. Civil society also has a key role to play in encouraging and supporting reforms and in harnessing community support for change. Until these measures have been allowed some time to take effect, it may be premature and

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perhaps, to some extent, counter-productive to begin to decry the failure of anti-corruption efforts.

References Cartier-Bresson J (1995) Leconomie de la corruption. In: Delia Porta, Donatella and Meny, Yves (eds.), Democratic et corruption en Europe. Paris, La Decouverte: 149-164. Eigen P (1994) Corruption, a catastrophe for developing countries. In: Due V. Trang (ed.), Corruption and Democracy. Budapest, Institute for Constitutional and Legislative Policy: 65-72. Mauro P (1997) "Why worry about corruption"? The Economic Issues, Series, Washington, The International Monetary Fund, 1997. Peith M (2000) From ideal to reality: Making the new global standard stick. In: No Longer Business As Usual: Fighting Bribery and Corruption. OECD, Paris: 51-65. Quah JST (1999) Accountability and anti-corruption agencies in the AsiaPacific region. In: Combating Corruption in Asian and Pacific Economies. Manila, Asian Development Bank/OECD: 101-124. Sacerdoti G (2000) To bribe or not to bribe. In: No Longer Business As Usual: Fighting Bribery and Corruption. Paris, OECD: 29-49. Sullivan PH (1999) The "Keynote Address". In: Combating Corruption in Asian and Pacific Economies. Manila, Asian Development Bank/OECD: 1-9.

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Chapter 3

The Asian Money Laundering Explosion

Peter Lilley

"Gold is tested by fire, man by gold" — Ancient Chinese proverb "True Gold fears not the test of fire" — Traditional Chinese saying

What Is Money Laundering? Whilst it is universally accepted a n d used incessantly, the phrase "money laundering" has n o single — or accepted — definition. Many perceptions still e n d u r e in the collective psyche of what money l a u n d e r i n g is: ranging from the suspicious character turning u p at a bank c o u n t e r with a suitcase overflowing with used notes, to the dictum that money laundering is solely drugs related predominantly, if n o t exclusively, focused o n t h e nefarious activities of South American gangs. Certainly this latter version of "reality" has b e e n p r o m o t e d by t h e US g o v e r n m e n t a n d r e i n f o r c e d by various Hollywood blockbusters. It is only recently b e c o m i n g clear (or at least clearer) that m o n e y l a u n d e r i n g is a robust, corrosive, all consuming a n d dynamic activity that has a series of processes which have far reaching financial, economic a n d social consequences a n d effects. At their zenith these effects engulf financial institutions, capital markets, currencies, interest rates, national economies a n d ultimately national, regional a n d international security.

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Drug money, although still an i m p o r t a n t part of the funds that n e e d to be washed, is merely o n e facet of a wide range of criminal activities that generate the money to be laundered. Such money is effectively useless unless the original source of it can be disguised, or preferably obliterated. T h u s the money l a u n d e r i n g dynamic lies at the c o r r u p t h e a r t of many of the world's social a n d e c o n o m i c problems. T h e list of crimes generating the dirty money includes — b u t is definitely n o t limited to — political corruption, illegal arms sales, terrorism, h u m a n trafficking, fraud, blackmail/extortion a n d customs a n d VAT fraud. Added to this list — or at least according to the pre-Bush US administration — is tax avoidance. But the new Bush Administration seem to be looking to allow m o r e o p e n 'avoidance' systems to be enacted in the US. In May 2001, the Malaysian finance minister, Daim Zainuddin c o m m e n t e d that the washing of dirty money gives "wicked legitimacy to proceeds acquired t h r o u g h d r u g trafficking, extortion a n d arms smuggling". Not only is m o n e y l a u n d e r i n g difficult to define b u t also the a m o u n t s involved are impossible to estimate. T h e United Nations H u m a n Development Report of 1999 stated that global criminal activity g e n e r a t e s $1.5 trillion each year; o t h e r estimates have concluded that money l a u n d e r i n g accounts for between 2 a n d 5 p e r cent of GDP — giving a global total of u p to $3 trillion p e r a n n u m . Whilst such estimates have b e e n dismissed in some quarters as alarmist, inaccurate or incorrect (or all t h r e e ) , it is actually highly likely that such staggering totals are an u n d e r estimate, r a t h e r than the widely assumed opposite. O n e m i n o r yet recent example was offered by T h e Wall Street J o u r n a l Europe, 18 July 2001 which r e p o r t e d that the Central Bank of Kazakstan confirmed that a "grey money" amnesty b r o u g h t in $480 million T h e m o n t h long "no questions asked" amnesty which e n d e d in the middle of July 2001 drew in money from over 3,000 people — b u t only 11.4% of the cash was repatriated from foreign bank accounts. Views o n the purpose of the amnesty were mixed: some commentators saw it as an antidote to previous chaotic tax regimes, whilst others saw it as a m e t h o d of legitimizing massive

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amounts of money obtained through bribery and corruption by officials. Money laundering is simultaneously both a staged process (placement, layering, integration) and a cyclical dynamic — with the end result that the profits from crime can be washed only to be reinvested in further criminal activities, which can be the same as those which originally generated the funds or new ventures. One obvious by-product of this dynamic flow is that the conditions and effects of the original environment(s) that facilitated the criminal events and resultant profits are maintained, reinforced and reinvigorated. The explosion in money laundering that has been ignited in the last few years has been fueled by some key factors, such as: • The globalization of markets, financial flows and information — most prevalent in the single global market of the Internet. Virtual money laundering is now a reality with money being transferred across the globe in nano seconds • Just as there is no global definition of money laundering, there exists no consistent or coherent anti-money laundering regulation or legislation (in fact in some Asian countries, there is simply no regulation or legislation whatsoever). Added to this important problem is lack of co-operation between individual countries: cooperation is increasingly needed to tackle pan-global washing of funds • A global unregulated market puts at its pinnacle the need for profit — sometimes at any cost. Criminal organizations and the funds that they generate can, and do, yield great influence in their relationships with the legitimate businesses that are driven by the need for turnover and profit. Simultaneously such unfair competition can drive legitimate concerns out of business, and at its extreme can threaten the economies of whole countries. • Running as a parallel stream to these factors is the rapid, and ever increasing, pace of technological-driven change. Criminals operate at the cutting edge of technology; sadly regulators and law enforcers do not

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The global impetus to fight money laundering comes from the basic premise that dirty money is the lifeblood of all criminal activity: if it can be identified and seized then crime will be stifled, and ultimately halted. Well, at least that's the theory... The Increased Relevance of Asia in the Global Money Laundering Dynamic The increased realization of the importance of Asia in both global geopolitical and geoeconomic terms has meant that money laundering has become a key issue in the region. That is not to say that money laundering in the area is a new event — quite clearly it is not — rather that it is now being discussed and (to varying extents) addressed. However because of the rapid pace of globalisation — as typified by the spread and reach of the Internet — discussion of money laundering purely in Asia is, in many ways, an artificial distinction. Moreover it is also important to distinguish between domestic money laundering (which is essentially money generated by crime and laundered in the banking system of the same country) and transnational money laundering (where the original criminal activity and the laundering are separated by one — if not numerous — national borders). It is not only because of these factors that generalizations relating to this problem in Asia are difficult. As a recent paper by the Malaysian central bank, quoted by Agence France-Presse on 21 May 2001, observed "Since money laundering is an international problem, a collective international and regional response is necessary in the fight against it — with globalization it has become an issue of global dimensions" Notwithstanding such caveats, estimates have placed the amount of money laundered annually in Asia at around 200 billion US dollars, or at least one fifth of the global total. Japan, for example, investigated at least seven billion dollars worth of suspicious transactions in fiscal 2000 — a rate of between 100 and 200 each week.

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Interestingly though, T h e Financial Action Task Force (FATF) seem to h a v e s o m e w h a t o v e r l o o k e d p r o b l e m s in Asia w h e n t h a t organization n a m e d countries that are uncooperative in dealing with money laundering. T h e two FATF "blacklists" issued in J u n e 2000 a n d 2001 have included three Asian countries: Indonesia a n d Myanmar (included in the 2001 list for the first time) a n d the Philippines (which is o n both lists, a n d in the J u n e 2001 list, is o n e of the top three targets for action, together with N a u r u a n d Russia) (FATF, 2000a, 2000b, 2001a, 2001b). T h e r e are some factors which are u n i q u e to Asia (or parts of it) that facilitate money laundering. These include: •

An economy still based o n cash transactions, which in turn leads to a willingness to conduct large transactions by cash (This creates special difficulties for a "western"-based money laundering regulation system, which has as a fundamental tenet the highlighting of large cash transfers as being suspicious transactions) • N u m e r o u s u n d e r g r o u n d banking a n d remittance systems (such as "hawala" a n d "hundi") which operate as traditional cash a n d trust based processes. In India, Pakistan a n d Dubai, the Hawala system creates significant m o n e y l a u n d e r i n g problems. And of course o n e of the problems is that it is very difficult to distinguish between legitimate transactions a n d those involving m o n e y laundering. Because such systems are n o t designed to deal with "official transactions" they provide complete confidentiality a n d n o p a p e r trail. They are essentially based o n trust, a n d involve n o physical transfer of funds: rather a hawala broker in o n e country essentially arranges for his client for a broker in a n o t h e r country to make a payment to the i n t e n d e d beneficiary. Increasingly the funds to be "transferred" are paid in gold to the brokers, who have later to rationalize their own 'interbanking' levels a n d fund flows. T h e 'transfers' are between the brokers so will consist of b o t h legitimate transactions a n d money laundering. • T h e region contains various major narcotic p r o d u c t i o n areas, the two principle being the Golden Crescent of Afghanistan, Iran

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a n d Pakistan) a n d the Golden Triangle of Thailand, B u r m a a n d Laos. Whilst t h e obstacles of m o n e y l a u n d e r i n g a n d corruption are present in each of these countries the most corrosive effects can be seen in Myanmar. T h e G o v e r n m e n t has arranged a series of cease-fire agreements with rebel groups for decades; however such agreements have simply m e a n t that d r u g cartels have b e e n able m o r e easily to traffic their opium, heroin a n d m o r p h i n e . Such p r o d u c t i o n (which has increased since 1989) effectively means that the economy of Myanmar is p r o p p e d u p by dirty money which is being l a u n d e r e d there. • Across Asia there are serious problems with product counterfeiting — c o m p u t e r software a n d music CDs are t h e m o s t usually reported illegal products; however there are many m o r e — China is a substantial p r o d u c e r of counterfeit cigarettes, for example. Such widespread illegal m a n u f a c t u r i n g activities are almost exclusively the d o m a i n of organized crime groups, most of whom are both highly efficient a n d very influential. Their activities create substantial volumes of funds that n e e d to be washed a n d these give them the ability to corrupt weak officials and politicians, a n d to infiltrate their ranks. • In 2001, the US D e p a r t m e n t of State c o m m e n t e d that in Asia "weak governments with poorly developed a n d financed law enforcement infrastructures provide fertile environments in which d r u g trafficking organizations have flourished" (US D e p a r t m e n t of State, Bureau for International Narcotics and Law Enforcement Affairs, 2001). A n d as if to show b o t h the diversities of the region a n d the flexibility a n d agility of money launderers, the washing cycle is encouraged a n d achieved by countries that either (i) have highly developed banking systems (thus compliant professional advisors), or (ii) in those countries with u n d e r d e v e l o p e d b a n k i n g a n d legal systems.

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In the former, l a u n d e r i n g can be h i d d e n , a n d in the latter there is little risk of detection. Global m o n e y l a u n d e r i n g has b e e n substantially aided by the I n t e r n e t explosion. In this respect Asia has a further handicap: the r e g i o n lags b e h i n d in the r e l a t e d areas of c o m p u t e r security, the prevention of cyber crime, a n d its investigation a n d prosecution. Criminals optimize the benefits of cutting edge technology, a n d thus Asia's lack of relevant laws a n d resources to tackle the p r o b l e m may well prove to be the biggest security threat in the region. Each day millions in Asia log o n t o the Internet, in J a p a n alone there are 60 million mobile p h o n e users, a n d China's population now have m o r e mobiles than are owned in the United States. Interpol has highlighted that hacking is already a considerable problem: in South Korea incidents (or we should say r e p o r t e d incidents) against state a n d business organizations rocketed by 400% in 2000 (as r e p o r t e d by the Australian Broadcasting Corporation o n 27 February 2001). T h e overflow of such activity in Asia has already b e e n felt the world over, thanks to the "I love you" virus which originated in the Philippines b u t caused worldwide computer disruption a n d damages estimated in the region of 18 billion dollars. Whilst many now realize the real threats posed in Asia by the criminal usage of technology, relevant laws are still few. It has b e e n argued that Asian firms lag b e h i n d the U n i t e d States by 18 m o n t h s to three years in security developments. Evidence already available supports that view that organized crime groups in Asia show n o such resistance to technology, a n d are already maximizing its use (Lilley, 2000).

Money Laundering Typologies in Asia T h e money l a u n d e r i n g typologies utilized (or at least those that have b e e n identified) in Asia are virtually identical to those utilized across the world. T h e only key differentiating factor is that the actual composition of m e t h o d s may vary from o t h e r regions. Particularly prevalent are:

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• Cross border smuggling of cash a n d / o r money orders and bank drafts • The use of telegraphic transfers • The utilization of bearer instruments (including bank drafts, stock certificates, insurance certificates, bonds) • The purchase of items of value to launder funds (such items include the usual favorites of luxury goods, gold, cars, and real estate) • The opening of accounts at financial institutions in false names • False invoicing Transparency International, in their annual Corruption Perception index, which in turn is a telling evaluation of those countries with severe money laundering problems highlights the wide disparities present in Asia. In the 2001 index (Transparency International, 2001), covering ninety-one countries, Singapore was ranked the fourth least corrupt country in the world, with Hong Kong the fourteenth. Other Asian countries faired less well: Taiwan (2V), Malaysia (36), South Korea (42), China (57), Thailand (61), Philippines (65), India (71), Vietnam (75), Pakistan (79), Indonesia (88) and Bangladesh (91). Such findings are reflected in various other surveys that uniformly place Singapore and Hong Kong as the least corrupt jurisdictions, and Indonesia regularly is being named as the most corrupt nation, which raises serious causes for concern. Such surveys — whilst interesting to read and quote — also have a discernible effect on the international perception of countries. For instance, it may influence the international credit rating agencies' evaluations of such countries and their financial institutions. Money laundering is migratory — thus countries perceived as being corrupt actually attract further sums to be laundered, and attract also the criminals behind this money. It is only a small step onwards for the launderers to influence financial, political and economic institutions in the relevant country and this in turn affects national or regional security issues. In such a situation, money laundering feeds corruption as proceeds of crime are paid to bank

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officials, politicians, businessmen, law enforcement a n d government personnel in r e t u r n for the acquiescence or, even better, active cooperation. T h e migratory effect would t h e n c o n t i n u e with foreign criminals being attracted. Ultimately such a pervasive e n v i r o n m e n t of crime, money l a u n d e r i n g a n d corruption will have social effects in that citizens will lose trust in the country's banking system a n d political structures. Foreign corporations (and thus their investment) will avoid such countries, a n d international bodies will advise against investment a n d dealings with these countries. Of course what I have just described is a theoretical chain of events. Regrettably t h o u g h reality is n o t so dissimilar — b o t h Indonesia a n d T h e Philippines seem to exhibit many of these traits. T h e corrupt environment in Indonesia is immediately a p p a r e n t in escalating money-laundering problems: it is estimated by US law enforcement West Africans a n d Southeast Asians using West African Couriers wash some $500,000 o n a weekly basis (Lilley, 2000) T h e general picture in Indonesia is saddeningly familiar, with a critical factor being that the Indonesian National Police lack sufficient resources, training or expertise to tackle the serious problems that they face.

Organized Crime Groups in Asia It is almost impossible to catalogue the many a n d various organized crime groups that exist in Asia. T h e region has groups that specialize in every area of criminal activity encompassing higly profitable d r u g cartels, a r m e d terrorist groups, a n d financial fraud specialists. In Myanmar, as n o t e d above, the Government has negotiated ceasefires with U n i t e d Wa State Army (UWSA), t h e M y a n m a r Democratic National Alliance Army (MNDAA), the Mongko Defence Army (MDA), the Shan United Revolutionary Army (SURA), the Kachin Defence Army (KDA) a n d the Eastern Shan State Army. It has b e e n persuasively argued that many of these groups, who are now officially tolerated, are n o t h i n g m o r e than a r m e d terrorists who generate funds t h r o u g h narcotics.

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In J a p a n , the influence of the Yakuza o n the country's business a n d b a n k i n g sectors were severely u n d e r e s t i m a t e d until t h e i r activities e m e r g e d as a key facilitator a n d cause of J a p a n ' s financial turmoil. Estimates as to the m e m b e r s h i p of the Yakuza hover a r o u n d the 100,000 mark, with an annual turnover of u p to US$90 million per a n n u m (Lilley, 2000). Such estimates make the Yakuza by far a n d away J a p a n ' s biggest business. They have c o r n e r e d the market in J a p a n for property a n d loan fraud, together with prostitution, debt collection a n d extortion rackets. T h e downturn in the domestic economy has m e a n t that the Yakuza has spread o u t from their traditional family/national base a n d taken u p investments a n d business opportunities in Hawaii, Australia, the Philippines a n d o t h e r areas of South East Asia. T h e intricate network of Chinese criminals, which are commonly referred to as Chinese Triads now operate in every major center of the world having a sizable Chinese population. From their origins in the seventeenth century it is now estimated that there are u p to 100,000 c u r r e n t m e m b e r s organized in six main gangs that are rivals at local levels, b u t which co-operate globally. T h e Triads are heavily involved in gambling, illegal prostitution, h u m a n trafficking, extortion, fraud, loan sharking, counterfeiting, d r u g trafficking a n d money laundering. Apart from, a n d in addition to, the vast range of domestic organized crime groups Asia is a particularly appealing location for foreign crime groups to extend their business activities to. Already Russian gangs a n d Nigerian/West African groups are heavily active in the region. Further, it should n o t be forgotten that there is increasing reliable intelligence that confirms that many individual criminal gangs are now co-operating with similar gangs from different countries to their mutual benefit (Lilley, 2000).

Offshore Financial Centres in Asia — A Growing Threat Palau has a land area of 458 square meters, a population of a b o u t 18,000 — a n d unless you have an interest in advanced geography is

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impossible to find o n a m a p . T h e island in fact used to be called Belau, a n d is in the Pacific O c e a n east of the Philippines. Such a jurisdiction gives a frightening indication as to where money laund e r i n g in Asia a n d o t h e r geographically close locations may go next. Palau appears to be setting itself u p as an offshore financial center, or tax haven. Courtesy of the Internet you can buy a Palau offshore banking license — well, you d o n o t (strictly speaking) have to apply for a b a n k i n g license, merely register a normal company a n d say somewhere in the objectives that your company is going to act as a bank. Governments in many m i n o r jurisdictions are setting u p similar offshore financial centers a n d thus stimulate (if n o t totally maintain) the local economy. Already across the world, locations that you have probably never h e a r d of have escaped from poverty a n d debt by providing a p a n o r a m i c variety of financial services a n d corporate vehicles. International pressure has to a large degree forced traditional a n d established offshore centers to substantially clean u p their acts — thus gray opportunities exist for new entrants, willing to attract new customers. Already it has b e e n r e p o r t e d that the Nepalese government is p l a n n i n g to establish an offshore center in Katmandu — I suspect that others in Asia will follow. T h e key criteria to watch o u t for are: • • • • • • • •

Corporate structures that can be created or b o u g h t quickly, easily a n d cost effectively A financial center that maintains absolute secrecy a n d confidentiality T h e absence of any tax b u r d e n A non-existence of any treaties to exchange tax information with any o t h e r countries Excellent communication links N o exchange controls P r e d o m i n a n t use of a major world currency, preferably dollars T h e ability to disguise the ownership of corporate vehicles through the use of n o m i n e e directors a n d bearer shares

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T h e absence of normally accepted reporting requirements for companies such as annual financial returns T h e absence of normal accepted company supervision

Of course to a certain extent Asia already has some key offshore centers, such as H o n g Kong — a n d various lesser-known ones, such as Labuan (Malaysia). H o n g Kong provides offshore banking licenses, t r u s t a n d m a n a g e m e n t c o m p a n i e s a n d h a s at least 500,000 International Business Companies. However H o n g Kong is perceived as having tight anti-money l a u n d e r i n g controls a n d crucially has criminalized m o n e y laundering beyond drugs. Brunei, Macau, T h e Philippines, Singapore a n d Thailand also offer varying levels of offshore financial services a n d products.

A Country by Country Evaluation of Money Laundering Problems in Asia Afghanistan T h e US G o v e r n m e n t position is that Afghanistan is a major d r u g p r o d u c i n g a n d / o r transit country that has n o t b e e n certified as trying to combat the problem. Even t h o u g h the country is o n e of the largest producers of opium, because the banking system has effectively b e e n destroyed by political upheaval it is n o t used by domestic (or international) m o n e y launderers. T h e major p r o b l e m in the country (as far as the thesis of this book is concerned) is that it is estimated to be the world's second largest p r o d u c e r of o p i u m poppy; major regions are Helmand, Kandahor, Uruzgan a n d Nangarhar provinces. T h e r e are n o international organized crime problems as such, b u t as the o p i u m poppy is the country's main cash crop it obviously provides a substantial source of revenue a n d thus i n f l u e n c e . As t h e r e is n o "official" g o v e r n m e n t , an official position is difficult to gauge, although it is now suspected that the Taliban are involved in narcotics trafficking. Like some o t h e r Asian c o u n t r i e s , profits from d r u g s have m a d e substantial in

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r o a d s into t h e legitimate e c o n o m y t h r o u g h c o n s t r u c t i o n commercial projects.

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Armenia A r m e d organized crime has a heavy presence; the gray economy is massive; public corruption is widespread. T h e situation is m a d e worse by high unemployment, low salaries a n d a large u n d e r g r o u n d economy. However as Armenia is n o t a major international financial center, the problems are predominantly domestic ones.

Azerbaijan Strong organized crime presence, weak legal system a n d e n d e m i c corruption are present in Azerbaijan. T h e country does n o t have any anti-money l a u n d e r i n g legislation b u t the problems are mostly domestic a n d specifically related to tax evasion.

Burma

(Myanmar)

T h e Country is the world's second largest p r o d u c e r of O p i u m . Money l a u n d e r i n g problems are exacerbated by a cash-based economy, a n d whilst anti money-laundering legislation exists it is n o t enforced. Details are sketchy b u t because of the major d r u g p r o d u c i n g levels it must be suspected that domestic money l a u n d e r i n g is substantial. Commentary suggests that Casinos on the country's borders are used for money laundering, as these establishments are entry points to the international financial system. T h e government actively encourages d r u g groups to invest their profits in legitimate enterprises, a n d it is r u m o r e d that the Government itself is involved in d r u g trafficking. T h e r e is n o p r o b l e m with international organized crime as such, b u t domestic groups obviously p r e s e n t as part of the d r u g p r o d u c t i o n a n d distribution culture.

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T h e Burmese government cease-fire agreements with d r u g groups in various areas (particularly the Shan State) have in effect legitimized the p r o d u c t i o n of narcotics a n d the resultant money l a u n d e r i n g — in fact the government have e n c o u r a g e d such groups to l a u n d e r funds t h r o u g h investments in hotels a n d construction enterprises (Lilley, 2000). Thus the l a u n d e r i n g of drugs cash is a significant factor in the Burmese economy — appearing in major infrastructure projects, banks, airlines, real estate. In fact some drugs m o n e y has b e e n used to s u p p l e m e n t g o v e r n m e n t funding of d e v e l o p m e n t projects. This e n v i r o n m e n t is further worsened by r u m o r s that g o v e r n m e n t a n d / o r army officials are heavily involved in d r u g production, or are corruptible to allow others to engage in such businesses without constraint.

Cambodia Cambodia's law enforcement bodies are chronically u n d e r resourced a n d lack even basic relevant training. T h e long history of internal disputes m e a n that the country has e n d e m i c corruption problems, which are further exacerbated by low levels of pay for civil servants, a weak judicial system, and a perception that justice can be "bought". However such corruption a n d money l a u n d e r i n g are merely two difficulties in a country that is poor, fragile a n d developing. O n e of the most difficult issues is that this state of affairs makes the country particularly vulnerable to organized crime groups, especially bearing in m i n d the country's position as a transit country for h e r o i n from the Golden Triangle.

China C h i n a has a c o m p l e t e r a n g e of o r g a n i z e d c r i m e g r o u p s a n d escalating crime rates t o g e t h e r with increasing domestic d r u g problems. Official corruption is widespread in the country, b u t greater effort is being focused on the money laundering, o n e reason b e i n g that the g o v e r n m e n t views such activities as o n e way of simultaneously tackling corruption (Lilley, 2000).

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Hong Kong H o n g Kong is an obvious target for money launderers, particularly the washing of proceeds from the sale of illegal drugs. A variety of factors contribute towards the importance of H o n g Kong as a money laundering target: • • • • • •

T h e strength a n d high level of infiltration of Chinese organized crime groups A low tax system Acting for China as its offshore banking center Sophisticated financial environment a n d infrastructure T h e absence of any currency a n d exchange controls T h e presence of various offshore company structures that can be used by non-residents.

Money l a u n d e r i n g in H o n g Kong extends to all serious crime. All banking a n d financial institutions must take customer identifications, a n d report suspicious transactions to a central unit. However because of the size a n d complexity of H o n g Kong's financial world there still remain problems — exhibited by: •

• •

T h e relatively low level of suspicious reports — the vast majority of which come from banks, with very few coming from insurers or professional advisors like solicitors a n d accountants T h e o p e n i n g of accounts with forged d o c u m e n t s T h e operation of cash cleansing t h r o u g h b u r e a u x de change a n d money remitters

India Money laundering is a growing p r o b l e m in India b u t is mainly confined to domestic activities that are far from being only drugs related: fraud, corruption a n d smuggling being obvious additional ones. T h e l a u n d e r i n g dynamic is exacerbated a n d facilitated by the hawala alternative remittance systems. T h e legal position in India in relation to money l a u n d e r i n g is also confused.

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Indonesia Indonesia lacks comprehensive anti-money laundering legislation. These are needed urgently because the country's economy is particularly vulnerable to money laundering. The reasons for this are: • • • •

The geographical location of Indonesia Strict banking secrecy High levels of corruption Various banking scandals including fraudulent schemes

Although most money laundering in Indonesia has related to domestic narcotics trafficking and the proceeds of corruption, urgent action is required.

Japan Japan has significant domestic problems with the Yakuza who are alleged to have in excess of 100,000 members. They were key factors in the collapse of various major Japanese Banks due to the somewhat irregular loan arrangements that were set up with them. First h a n d evidence from my own research confirms that until fairly recently Japanese banks accepted all kinds of funds without questioning their provenance. Because Japan is a major financial center, any weaknesses in the country's banking systems means that the proceeds of domestic crime have an easy entry point into the world's banking system — particularly that of the United States.

Kazakhstan The country is on the transit route of drugs from Afghanistan and Pakistan together with being an opium producer itself. Wide-spread and endemic corruption doesn't help matters, neither does the country's fairly advanced financial services environment. The country

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has, however, criminalized money l a u n d e r i n g in relation to drugs a n d o t h e r serious crimes. Unfortunately the enforcement of the relevant laws is weak.

Laos Laos is the third largest p r o d u c e r of o p i u m in the world, although m u c h of it is c o n s u m e d domestically. T h e country has n o antimoney l a u n d e r i n g legislation, even t h o u g h it is a regional financial center. Because Laos has strict laws o n the exporting of currency it is suspected that l a u n d e r i n g out of the country is achieved t h r o u g h alternative remittance systems.

Mongolia Whilst details are sketchy there is some intelligence that suggests Russian organized crime groups are making use of the country's banking system.

Nepal Nepal has n o anti-money l a u n d e r i n g legislation. It has, however, problems with drugs, currency smuggling, a n d the trafficking of h u m a n beings. H i g h levels of c o r r u p t i o n are suspected, a n d c o m m e n t e d o n by internal governmental reports (Lilley, 2000). T h e Government also has plans to establish an offshore financial center in Katmandu.

Pakistan T h e country is a major distribution a n d refining center for o p i u m (mainly in the Khyber region, a n d northwest frontier province). With it's formal e c o n o m y in tatters, various political scandals that contain allegations of m o n e y l a u n d e r i n g by various former

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leaders, a costly nuclear programme, and a military government that has placed the cleaning-out of corruption at the top of its agenda. Pakistan has more than enough domestic problems to contend with. The Philippines

No effective legislation, much political uncertainty and public corruption, and existing as a transshipment route of opium and other drugs from China, Organized crime groups from China, Taiwan and Hong Kong are all active here. There is strict banking secrecy. What more does one need? The country has no basic antimoney laundering regulations or legislation. The US treasury has already issued an advisory note recommending enhanced scrutiny for transactions involving the Philippines. Recent local media coverage has described Manila as "Asia's Money Laundering Capital", drawing attention to anonymous safe boxes, tight bank secrecy laws, and the irony that being awarded such a dubious provenance actually attracts a substantial inflow of funds.

Singapore

Singapore is simultaneously a major financial center with many shops trading in high value goods and a country that has a strong anti-drug culture. Additionally there exists a persistent undergound banking system, which when allied to the various shops selling high value goods provide a strong conduit for the washing of Asian heroin dealer's cash. To make this situation worse there are no controls on currency being brought in or taken out of Singapore. The anti-money laundering laws apply to banks, insurance companies, and bureaux de change and money remittance companies, but are currently only drugs related. The regulations mean that suspicious transactions must be reported and customers engaged in significant currency transactions should be identified.

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Taiwan T h e c o u n t r y has m o r e t h a n 60,000 h e r o i n addicts a n d is a transshipment p o i n t for Chinese heroin, thus creating a substantial money l a u n d e r i n g risk. T h e presence of sophisticated organized crime groups a n d persistent corruption makes the situation worse. It is estimated that at least half of the funds l a u n d e r e d t h r o u g h Taiwan are t h e n transferred abroad.

Thailand T h e country is trying to combat its money l a u n d e r i n g problem. But, because of its cash based economy a n d geographical position, Thailand is particularly p r o n e to m o n e y launderers, particularly funds g e n e r a t e d by illegal drugs in South East Asia.

Vietnam T h e r e exists little evidence to suggest that money laundering is a serious p r o b l e m in Vietnam, b u t the country has a substantial gray economy that makes the identification of dirty m o n e y difficult. Vietnam, because of its geographical position, is a transshipment country for drugs from the Golden Triangle together with being an attractive target for overseas crime groups.

Some Solutions to the Asian Money Laundering Explosion "The art of war lies in thwarting the enemy's plans, in breaking u p his alliances, a n d then, only then, in attacking his army": Sun Tzu circa 5BC (Sun Tzu, 1995) It is n o t at all difficult to suggest solutions to the m o n e y laundering problems e n c o u n t e r e d in Asia. What is difficult is to i m p l e m e n t such solutions. This is particularly so w h e n severely affected Asian countries c a n n o t h o p e to successfully tackle the washing of criminal funds in isolation, b u t only as part of a co-

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operative robust set of actions to deal with the underlying and interlinked causes (and effects) of organized crime, drug production and corruption. The worldwide initiatives against money laundering provide the framework, ground rules and benchmarks for a national anti money laundering regime. The key documents are: • The United Nations convention against illegal traffic in narcotic drugs and psychotropic substances, issued in 1988 and known as the 'Vienna Convention' (United Nations, 1998) • The prevention of criminal use of the banking system for the purpose of money laundering, issued by the Basle committee on banking supervision in 1988 (Basle committee on banking regulations and supervisory practices, 1988) • The forty recommendations to tackle money laundering issued by the Financial Action Task Force on Money Laundering (The FATF) (The Financial ActiForce, 1999). One of the many positive joys of the Internet is that you can download each of the above documents at the click of a mouse, thus I do not intend to repeat secondhand all of the information that each of the above contain. That being said, it is important to highlight the key elements where they may provide a way forward for countries in Asia. The Vienna Convention provides extensive advice and guidance for countries in the control of illegal drugs. Specifically in relation to money laundering the United Nations urges member states to implement the following: • To establish a comprehensive legislative framework to criminalize money laundering related to serious crimes; and to prevent, detect, investigate and prosecute money laundering by: - identifying, seizing and confiscating the proceeds of crime. - including money laundering in mutual legal assistance agreements to ensure assistance in international investigations, court cases and judicial proceedings

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the establishment of an effective financial a n d regulatory regime to deny access to national a n d international financial systems by criminals a n d their illicit funds through: -

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Customer identification a n d verification requirements Financial record keeping Mandatory reporting of suspicious activities Removal of b a n k i n g secrecy i m p e d i m e n t s to a n t i - m o n e y laundering efforts

T h e implementation of enforcement measures to provide for: - Effective detection, investigation, prosecution a n d conviction of criminals engaged in money l a u n d e r i n g activity - Extradition procedures - Information sharing mechanisms

T h e prevention of criminal use of the b a n k i n g system for the p u r p o s e of m o n e y laundering, issued by the Basle Committee o n b a n k i n g supervision in 1988 set o u t best practice guidelines to "encourage vigilance against criminal use of the payments system". Key r e c o m m e n d a t i o n s are: • To implement customer identification (the "Know Your Customer" principle) • Banks should r u n their business to high ethical standards, a n d n o t be associated with any transactions they suspect are associated with money laundering • Banks should co-operate with law enforcement agencies • Banks should retain key records a n d train staff It should also go without saying that such principles should n o t only be applied to banks, b u t o t h e r corporate entities that can be utilized for money laundering, such as b u r e a u x de change, moneychangers, securities traders a n d so on. T h e FATF's forty r e c o m m e n d a t i o n s are now very m u c h the cornerstone of national anti-money l a u n d e r i n g programs, a n d are

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a b e n c h m a r k against which such programs are measured. T h e key issues of the r e c o m m e n d a t i o n s are: • • •

• • •

Each country should ratify a n d i m p l e m e n t fully the Vienna Convention Multilateral co-operation, mutual legal assistance a n d extradition treaties are stressed T h e importance of Know Your Customer procedures a n d the statement that "Financial institutions should n o t keep anonymous accounts or accounts in obviously fictitious names" Necessary records should be maintained for five years so that relevant transactions can be reconstructed Policies, procedures, controls, ongoing staff training a n d compliance testing are all r e c o m m e n d e d T h e final set of r e c o m m e n d a t i o n s p r o m o t e s i n t e r n a t i o n a l cooperation t h r o u g h the exchanging of intelligence, a n d bilateral a n d m u l t i l a t e r a l a g r e e m e n t s facilitated by c o m m o n legal concepts. T h e tools to achieve this include financial institutions which are to p r o d u c e records, identifying, freezing, seizing a n d confiscating criminal proceeds, together with extradition a n d prosecution agreements.

Of particular relevance to Asia is the advice given to compliant nations that they should be particularly wary of business relationships a n d transactions t h a t involve countries that d o n o t apply the r e c o m m e n d a t i o n s . In o t h e r words unless Asia as a whole a n d / o r specific nations do n o t clean u p their act then it is almost certain that sanctions will be forthcoming. To enact anti-money l a u n d e r i n g legislation, politicians must b e convinced of the necessity of such a step. But willpower in itself is n o t e n o u g h : financial a n d m a n p o w e r resources are b o t h a prerequisite for a successful regime. Even if these are available relevant laws will only work if they are: • •

Simple to understand a n d implement Efficient a n d effective

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Able to co-exist a n d supplement existing laws a n d procedures Have a strong d e t e r r e n t e l e m e n t Are comprehensive.

Money l a u n d e r i n g is the lifeblood of crime, to cut off this supply should prevent criminals from retaining the proceeds of their activities by: • • •

Restraining or seizing property p e n d i n g investigation a n d prosecution Confiscating property u p o n conviction Restraining a n d confiscating property where launderers have fled the country.

Crime can only succeed if the dirty money generated by such activity can be washed, a n d thus legitimized. If such cleaning can occur t h e n the original (and subsequent) criminal activities e x p a n d a n d flourish. Money l a u n d e r i n g is the key tool to enable this dirty dealing. Much activity, legislation, regulation a n d enforcement has taken place in the West to tackle the m o n e y l a u n d e r i n g problem: b u t it still exists a n d shows n o sign of abating. If the individual countries of Asia (both independently a n d collectively) do n o t begin to robustly a n d uniformly tackle the p r o b l e m they r u n the very real risk that they will b e c o m e ostracized a n d marginalized from the global economy, with devastating financial (not to m e n t i o n social) results.

Postscript This chapter was written in August 2001, a n d thus predates the terrorist atrocities of 11 September 2001. In many ways those events provide the most dramatic example of the social a n d political effects of money laundering. T h e Al Q u a d a network could never have m o u n t e d such attacks without extensive l a u n d e r i n g of their funds t h r o u g h the world's b a n k i n g networks a n d systems, whilst the actual amounts n e e d e d to m o u n t the September 11 attacks were relatively

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small, the key underlying volume of funds to support global terrorist activities are e n o r m o u s . Much of this money is b o t h generated in Asia a n d placed into the global b a n k i n g system there. T h u s the immediate n e e d for unified worldwide enforcement action against money l a u n d e r i n g has never b e e n greater. Neither has the critical r e q u i r e m e n t for individual governments in the Asian continent to p u t their houses in o r d e r b e e n m o r e vital. Similarly the likelihood of severe enforcement action against non-compliant countries is now n o t just a probability b u t a certainty.

References and Further Reading T h e r e are (as far as am aware) very few — if any — books that solely focus on money laundering problems in Asia. This is probablyjust as it should be, bearing in m i n d the global n a t u r e of the problem. In writing this chapter I have m a d e use of the following reports a n d books as background material: Basle Committee on Banking Regulations and Supervisory Practices (1988), Prevention of criminal use of the banking system for the purpose of money laundering, Basle. Lilley P (2000) Dirty Dealing. Kogan Page, London. The Financial Action Task Force (1999) The Forty Recommendations, Paris. The Financial Action Task Force (2000a) Annual Report XI, Paris. The Financial Action Task Force (2000b) First FATF Review to Identify Non-Cooperative Countries or Territories, Paris. The Financial Action Task Force (2001a) Annual Report XII, Paris. The Financial Action Task Force (2001b) FATF review to identify noncooperative countries or territories: Increasing the worldwide effectiveness of anti-money laundering measures, Paris. Sun Tzu edited by Clavell, J (1995) The Art of War. Hodder & Stoughton, London. Transparency International (2001) Corruption Perception Index 2001, Berlin. United Nations (1998) Convention against illegal traffic in narcotic drugs and psychotropic substances, Vienna.

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US Department of State, Bureau for International Narcotics and Law Enforcement Affairs (January 2000) Narcotics Control Report, Washington. US Department of State, Bureau for International Narcotics and Law Enforcement Affairs (January 2001) Narcotics Control Report, Washington. Additionally many if n o t all of the d o c u m e n t s a n d guidelines referred to can be found in full o n the internet, links to all relevant sites are listed at my firm's website, www.proximalconsulting.com.

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Chapter 4

Corruption in Context

Leslie Palmier

Introduction As generally used, corruption is a term applied to the illegitimate use of office by a public officer for his personal advantage. Most often, this means his e n r i c h m e n t or that of his family or close associates, b u t it would be difficult to deny the term to o n e who used his office to better himself in, say, a political party. T h e phrase "public officer" covers b o t h officials a n d ministers, that is to say all who draw an i n c o m e from public funds. Similar activities by those n o t so employed have different names. T h e activities principally covered by this definition are bribery, extortion, a n d conspiracies to defraud public funds. T h e last are, in financial terms, perhaps the most important. A recent example is the Bank Bali Scandal of 1998 in Indonesia. A PricewaterhouseCooper r e p o r t showed that Bank Bali used a firm owned by a senior official in the government's party, Golkar, to collect interbank loans for a commission of US$80 million, despite a g o v e r n m e n t ruling that such commissions were n o t payable. T h e funds were to be used to help the t h e n president Habibie win a renewal of his term of office (see http://www.thejakartapost.com).

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Similarly, it is n o t u n k n o w n for purchasing officers of Indonesian d e p a r t m e n t s to collude with their d e p a r t m e n t a l heads to set u p a d u m m y company with which they place contracts. Bribery is often part of fraud. A d e p a r t m e n t a l buying officer may arrange for a large bribe to be paid to him by a supplier; the latter simply a d d i n g it to the invoice, which the buying officer t h e n authorizes for payment. Plans for building projects are drawn u p with the full cooperation of the contractor, a n d the 'commission' to be paid to the official c o n c e r n e d (usually 12.5 per cent of the 20 p e r cent profit), is agreed in advance. T h e proposals are so designed that n o inspector would be aware of anything amiss. This form of fraud is referred to as "planned corruption" (Hamzah, 1984). Extortion is the exacting of payments in cash or in kind from those over w h o m the officer has authority. This is sometimes the abuse of a traditional custom of gift giving, which becomes extortion when the balance of power changes in favor of the officer. T h e corruption of the 18th century English East India Company included this practice. W h e n the company assumed the government of Bengal, its officers f o u n d the custom prevalent, a n d they quickly took advantage of the situation. ' T h e extent of present-taking... however justified by the practice of the country, u n d o u b t e d l y whetted the appetites of [Company] merchants; d e m a n d followed d e m a n d a n d d o n a t i o n donation...it was the Bengal peasantry a n d merchants who were being squeezed... (Spear, 1975). Similarly, in the Java of the 18th century, ruled by the Dutch East India Company, 'Officials used the tremendous power that their position in the Company gave them to extort money from the few Europeans who were settled in Java and from the many natives.' (Day, 1904) Two centuries later, extortion also accounted for the greater part of the e m o l u m e n t s of Soviet U n i o n public officers (Simis, 1982). It would be wrong, however, to convey the impression that extortion was u n k n o w n until these two trading companies acquired

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territorial control. It is also e m b e d d e d in local historical tradition. O n e may take as an example the small 19th century sultanate of Aceh (pr. Acheh) in the n o r t h of the island of Sumatra, which later became part of the Netherlands Indies. While it was still independent, an e m i n e n t Islamic scholar of the day c o n d u c t e d a field study. H e r e p o r t e d of the subordinate chiefs c o n c e r n e d with the administration of justice that: It is only... in the direst necessity that their mediation is sought, for these chiefs hold it before t h e m as their principal aim to get as m u c h h a r d cash as possible for themselves, a n d take b u t little pains with cases, however weighty, from which there is n o t m u c h profit to b e won (Hurgronje, 1906). T h e spirit of these subordinate chiefs lives o n in the Indonesian administration, where those who j o i n its h i g h e r levels d o so because their positions will "contribute" to their private wealth (Hadisumarto, 1974). As a m o r e m u n d a n e example o n e may cite the situation where there is a severe shortage of telephones a n d telecommunication officials exact a bribe of several multiples of the official price. At the petty level, b u t of frequent occurrence, is the extortion of bribes by police from vehicle drivers. In some countries where imports of alcoholic beverages are forbidden, customs officers will p e r m i t t h e m if presented with a bottle of such drinks. In sum, varieties of extortion are limited only by the imagination of the officer a n d the opportunities available.

Characteristics F r a u d u l e n t corruption has often b e e n treated as a crime like any other, whereas it is quite distinct, even from extortion. To begin with, it is secret; there is n o evidence of anything amiss, n o safe burgled, n o corpse. T h e n , uniquely, there are n o obvious victims; it is a conspiracy between two or m o r e people against an abstraction, the state. This perhaps makes it m o r e acceptable to its perpetrators (though it does not, of course, lessen the offence). Also, detection is difficult b e c a u s e c o n s p i r a t o r s in fraud have n o interest in d e n o u n c i n g o n e another, all being very satisfied parties. Lastly, a n d

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often overlooked, as an enterprise such corruption gives an extremely high r e t u r n o n money a n d time e x p e n d e d , requiring very little, if any, capital, with only slight risk. Its attractions should therefore n o t be underestimated. Corruption of any kind is encouraged by the fact that it is difficult to punish. Public officers have often so a r r a n g e d matters that sanctions are far lighter than in the private sector. T h e r e , extortion, bribery, a n d fraud, when discovered are likely to result in immediate dismissal. T h e same activities in public services often merely require investigation. This could last several years, in the course of which the accused officer may well take early retirement, with pension, as the better p a r t of velour, so bringing proceedings to a close, a n d the officer leaving with character untarnished. T h e extent to which public officers protect o n e a n o t h e r could n o t be better illustrated than by a recent account in an Indonesian newspaper (JP, 15 September 2001). Allegations of bribery h a d a t t e n d e d the election of the governor of North Maluku, a n d the Indonesian government set u p a team of senior officials to investigate. T h e i r c h a i r m a n r e p o r t e d that there h a d i n d e e d b e e n bribery of two m e m b e r s of the provincial legislative council, b u t ' . . . t h e prevailing regulations... stipulate that allegations of money politics can only affect the election result if m o r e than o n e councilor has r e p o r t e d vote-buying to the provincial legislative council [but in this] case ...only o n e councilor h a d received a bribe, while a n o t h e r h a d only b e e n promised a b r i b e . . . '

Comment is Superfluous However, corruption is stimulated perhaps less by laxity of sanctions than by opportunities available. As an Indonesian proverb has it: 'Opportunities make m e n steal' (Hamzah, 1984). It has b e e n shown elsewhere that c o r r u p t i o n a m o n g I n d i a n officials is greatest in d e p a r t m e n t s having financial dealings with the public (especially Finance) (Palmier, 1985a). In the Indonesian Dewan Perwakilan Throughout this article, masculine terms include the feminine.

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Rakyat or parliament, its m e m b e r s openly recognize this distinction. As o n e of t h e m revealed: Those considered "wet" commissions ... were commissions ... which dealt with supervisory tasks over banking and state enterprises. "Wet" commissions refer to those where bribery is a common practice, whereas in "dry" commissions it is not. (JP, 21 Sep 2001) Apparently the bribery by the government d e p a r t m e n t s is often b e i n g supervised. All this may provide a corrective to the frequently q u o t e d phrase from a letter by the British historian Lord Acton: 'Power tends to c o r r u p t a n d absolute power c o r r u p t s absolutely' 2 . T h e I n d i a n officials m e n t i o n e d did n o t differ greatly in rank; it was t h e availability of opportunities that distinguished t h e m . It would be m u c h closer to t h e m a r k to say t h a t ' o p p o r t u n i t i e s i n d u c e corruption, a n d the widest opportunities corrupt absolutely'. Support for this contention may also be drawn from the history of the East India Company m e n t i o n e d above. O n e of the major measures it took successfully to curb corruption was slowly b u t surely to remove officials from all contact with c o m m e r c e (Palmier, 1985b). It is therefore hardly surprising that corruption should flourish in developing countries. T h e m o d e l of development chosen, a n d sometimes for good reason, places officials in positions of authority over agricultural, industrial, a n d commercial activity, a n d in frequent a n d close contact with those so engaged, a n d thus with great opportunities for c o r r u p t i o n . Unfortunately, it is rare for such officials to be paid generous salaries. These conditions (very similar to those existing in b o t h Dutch a n d English East India Companies) provide a fertile soil for corruption. Strangely e n o u g h , official approaches to corruption rarely take opportunities into consideration. T h e unspoken assumption seems to b e that, irrespective of the strength of temptation, officials should be honest. If they are not, the fault lies exclusively at their

2

Proper consideration of this assertion requires taking into account the one by which it is followed: 'Great men are always bad men'.

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doors, n o t with the situation in which they are placed. This is of course wildly unrealistic, a n d goes a long way to explain the general a n d manifest failure to curb corruption. T h e r e is n o suggestion h e r e that public officers are less honest than o t h e r people, a n d therefore fall immediately into temptation. T h e p o i n t rather is that if o p p o r t u n i t i e s are a b u n d a n t a n d sanctions weak, it m u s t be expected that public officers will be corrupt. This is very m u c h the case in Indonesia; in the m o r e rigorous situation of public officials in India, the available evidence indicates that even complaints (leave alone proof) of corruption are directed at only a minority of public officers, even in those d e p a r t m e n t s p r e s e n t i n g lucrative opportunities (Palmier, 1985c).

Social Pressures In seeking to account for corruption, it seems useful to identify the social pressures bearing o n public officers. Some indication may be obtained by establishing the precise nature of the offence. As it was p u t d u r i n g the trial of a policeman in the British Central Criminal High Court, corruption alienates loyalty (Palmier, 1983). So perhaps corruption should be seen as a sign that the officer's loyally lies elsewhere than with the public service. For we may safely assume that generally ties of loyalty link people; a n d if it is n o t to their employers, o n e has to enquire where it lies. In developing countries, loyalty is often limited to traditional groups, which may be variously defined, for instance by kinship or territory. Two scholars of West Africa in the mid-1950s point to the fact that whereas corruption pervaded the local authorities, the tribal associations, often spending as m u c h money, were doing so honestiy. T h e r e was n o d o u b t where loyalty lay. N o r was the reason far to seek. T h e local authorities were 'government-sponsored a n d

3

Many ordinary Indonesians divide their history into 'the Dutch period', 'the Republican period', 'the New Order period', and so forth 3 . One does not get the impression of identification with any of these 'periods'; they are visitations over which there is no control.

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copied from a foreign m o d e l . . . ' (Wraith RE & Simpkins A, 1963a). O n e has to ask w h e t h e r at least some public officers in developing countries d o n o t have a similar view of the governments they serve a n d the international organizations with which they deal. T h e r e is an echo of this in a speech in Tokyo by the Indonesian President, Megawati S u k a r n o p u t r i . Referring to the wholesale theft of foreign loans by public officers, she asserted 'Although the m o n e y h a d g o n e , the Indonesian people were lulled with the word 'aid', so they felt it n o t was necessary to repay it.' (Kompas, 28 September 2001) A generation before she spoke, a n Indonesian a u t h o r identified the moral vacuum which underlay such attitudes: ... the moral norms of their own culture were certainly something that they greatly respected. That they may not take anything which it was not their right to possess, that they may not cheat, was a moral level which they considered holy, eternal, God-given. But when they entered a new environment and situation where their own culture no longer had authority, then the moral norms which usually they gready respected, became subject to challenge. The new moral norms they were not yet able to absorb into their consciousness, the old moral norms were shaky. (Soedarso, 1969a). O n e obstacle to u n d e r s t a n d i n g the situation is the obfuscation that pervades approaches to the study of developing countries, whether in Asia or elsewhere. It is well known that European colonies usually included several disparate peoples, often inimical to o n e another, a n d that b o t h the inception a n d persistence of E u r o p e a n rule may often be traced to these animosities 4 . For whatever reasons, it seems widely assumed that this situation changed with the achievem e n t of i n d e p e n d e n c e . This is reflected in the language used. Both official a n d i n d e p e n d e n t publications refer to developing countries as 'nations', whereas the reality is perhaps that for most, if n o t for

4

Not so much 'divide and rule', perhaps, as 'restrain and rule'. A contemporary western example is the situation in Northern Ireland.

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all, there is certainly a state, b u t n o t yet a nation; the holding of state power is precisely the most dangerous point of contention between the various population groups, as sometimes appears in very sanguinary fashion 5 .

Indonesia To illustrate the above, we may take die case of Indonesia, particularly as it is often called o n e of the m o s t c o r r u p t c o u n t r i e s . It is distinguished from many o t h e r former colonies in that the former ruler, the Netherlands, n o t only made n o attempt to unify the peoples it governed, it was a cardinal principle of policy that the various cultures s h o u l d b e m a i n t a i n e d u n c h a n g e d as far as possible. Consequently, they were d e n i e d the modernization that might have created a unified elite. What little education was vouchsafed certainly resulted in the development of a nationalist movement, b u t this was in fact a coalition of westernized leaders of ethnic groups, with the leading role being held by the largest, the Javanese. In the 1930s, the colonial government summarily placed several nationalist leaders in 'internal exile' o n a r e m o t e island in the archipelago. Even u n d e r these conditions the various ethnic groups did n o t coalesce, b u t r e m a i n e d distinct (Mrazek, 1994). Opposition to the colonial power held the nationalists together; i n d e p e n d e n c e dissolved the b o n d . In a b a c k h a n d e d acknowledgem e n t of the strength of ethnic ties, the new Indonesian government decided to sweep t h e m u n d e r the carpet a n d e n d the Dutch colonial practice of identifying ethnicity when taking a census. T h e first democratic elections, held in 1954, gave rise to some 27 parties with very similar p r o g r a m m e s , (Kepartaian di Indonesia, 1951) distinguished m o r e by the fact that they represented different ethnic groups. T h e elections also gave rise to a great deal of corruption, which was perfectly understandable. Indonesia at the time did n o t 5

The Concise Oxford Dictionary refers to a nation as "a large number of people of mainly common descent, language, history, etc." Few developing countries meet this criterion.

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have a large indigenous middle class, the essential r e q u i r e m e n t in countries where democracy has flourished, so that the only source of funds with which to fight an election was the government. Thereafter, t h r o u g h the country's many vicissitudes, there has b e e n a constant growth of allegations (sometimes well supported) of fraudulent corruption. At this point it is necessary to m e n t i o n the peculiar situation that applied in Indonesian law. In general parlance the m e a n i n g of, a n d attitude to, corruption are very similar to those the world over. Sharp distinctions are m a d e between bribes a n d corruption. T h e former, w h e n exacted by officials o n very low salaries, is considered forgivable, a n d the bribe readily given. This is n o t the case with fraudulent corruption, which is universally c o n d e m n e d . However, the laws relating to the offence, a n d which r e m a i n e d in force until the e n d of the 'New O r d e r ' in 1998, stipulated that for an action to be considered corrupt it must d a m a g e the finances or economy of the state. (Bribes, however, do not have this requirement) ( U n d a n g - u n d a n g ...1971). It must be obvious that this condition is very difficult to meet, a n d helps to explain why successive recent attorneys-general have found it hard to respond to vociferous public d e m a n d s that former president Suharto be charged with corruption. His main offence appears to be n o t that h e e n r i c h e d himself, b u t that h e provided his children with substantial monopolies (such as motorways). It might n o t be easy to show that this h a d d a m a g e d public finances or economy, particularly since until his deposition Suharto was known as the 'father of development'. O n e must also bear in m i n d that b u t for this condition a large n u m b e r of officers in the a r m e d services would be charged with corruption. T h o u g h fraudulent corruption is deplored, loyalty to one's group, however defined, may require its acceptance. Very revealing in this context are attitudes to the I n d o n e s i a n Chinese. (They will b e referred to h e r e as SinoTndonesians, since many of their families have b e e n in the country for decades if n o t centuries). T h e r e is n o d o u b t of their enterprise a n d generally greater prosperity than o t h e r indigenous ethnic groups in the country. This creates envy

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a n d fear. Typical of the general attitude was the answer given m e some time ago by a long-standing acquaintance (a Javanese a n d former official) w h o m I h a d n o t seen for some twenty years. To the r e m a r k that corruption seemed to have grown by leaps a n d b o u n d s over that period, the answer came, after a pause: 'How else can we keep u p with the Chinese?' In the same fashion, any ethnic g r o u p will be able to find a c o m p a r a t o r with which to c o n d o n e corruption. In any case the riches so acquired c o m m a n d respect. As the previously q u o t e d Indonesian a u t h o r tells us: [The corrupt rich] do not feel themselves condemned, and their social circles, too, neither censure nor ostracise them.. .On the contrary, their wealth has given rise to a feeling of social deference and respect. (Soedarso, 1969b) In other words, the social sanctions required to buttress anti-corruption regulations a n d laws (Wade, 1989) are absent. As a m o n g several pre-industrial peoples elsewhere, mutual help a m o n g those who define themselves as of c o m m o n origin, w h e t h e r t h r o u g h kinship or place, is of long standing. U n d e r Dutch rule, when very few of their Indies subjects qualified for higher education, it was n o t u n c o m m o n for whole villages to pay for the cost of sending their gifted m e m b e r s to study in the Netherlands. Similar attitudes are to be found in p r e s e n t day India, where caste m e m b e r s club together to build university halls of residence for their young. Also revealing is the experience of an international body's social research center based in that country in the 1950s. A p r o m i n e n t local academic was recruited as director. H e forthwith recruited virtually all the staff, from messenger to senior research officer, from his own population g r o u p in a distant part of the country. This would n o t have b e e n discovered b u t for the fact that the c e n t e r ' s a c c o u n t a n t , from a different p o p u l a t i o n g r o u p , was a p p o i n t e d by, a n d r e p o r t e d directly to, the international body. T h e social mores that obtain d o n o t consider such behavior corrupt. In Indonesia,

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... [many officials] always feel that they are justified in setting aside the principles that regulate and govern modern administration [i.e., probity] for reasons of family, for reasons of common welfare between colleagues and dependants. (Soedarso, 1969c) It would be naive to think that there is n o expectation of this help being repaid. O n the contrary, the assumption is that, say, the young person helped through university will in d u e course, having achieved the position of p r o m i n e n c e expected, use his or h e r influence a n d resources in favor of the traditional g r o u p m e m b e r s . This is in any case d u e from those favored by fortune. For Indians, an e m i n e n t novelist has brilliantly described the agonies of m i n d suffered by a young official, English-educated at his rich father's expense, when the latter, incriminated in an official d o c u m e n t which has reached his son's desk, as a matter of course expects him to s u r r e n d e r it (Jhabvala, 1987). In Indonesia, individuals in m o r e fortunate circumstances are expected to distribute as widely as possible opportunities for work or office or o t h e r favors they are in a position to bestow... [and] the d o n o r or even potential d o n o r creates rights to call u p o n the recipients for whatever type of help, s u p p o r t or loyalty h e may in turn n e e d a n d that they are or will be in a position to provide (Willner, 1970). Lest it b e t h o u g h t this is a peculiarly I n d o n e s i a n or, m o r e generally, Asian relationship, the situation in West Africa appears to have b e e n remarkably similar. 'Any man rising to a place of importance in politics will be surrounded by relatives and friends looking confidently to him for patronage; the tradition of centuries leaves them in no doubt that he will provide for them, and that if jobs do not exist they will be created.' (Wraith RE & Simpkins A, 1963(b)) In these circumstances allegiance is to a person, n o t to an abstraction such as 'the service' or 'the country'. In Indonesia, this was m u c h r e i n f o r c e d by t h e fact t h a t u n t i l t h e 1980s it was h e a d s of departments who appointed their own staff. In an attempt to improve

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matters, a system of selection for the bureaucracy by examination was introduced. But success indicates only that the examinee has reached the necessary standard, it does n o t give automatic right to a n a p p o i n t m e n t . This will d e p e n d u p o n a vacancy b e c o m i n g available, which of course leaves plenty of r o o m for nepotism. F u r t h e r s u p p o r t for traditional loyalties has b e e n provided by a well-meaning rule that posts should preferably be filled by a qualified person from the local province, for example by Javanese in their homelands, by West Sumatrans in West Sumatra, a n d so forth. In the early years of the republic, when the Javanese were the most educated, they filled most senior posts t h r o u g h o u t the country, a n d t h u s p r o v i d e d a s t r o n g framework. C o n s i d e r a b l e advances in education have taken place over the last half-century, so that in several instances Javanese have b e e n ousted by m e m b e r s of local groups. It would be surprising if their traditional loyalties were n o t thereby reinforced. F u r t h e r m o r e , Indonesian circumstances frequently compel the individual to appeal for help to the traditional group. W h e n law a n d o r d e r break down a n d are n o t quickly restored, the state is perceived to be partial towards the lawbreakers. This of course arouses traditional loyalties if only for self-protection, even a m o n g public employees. In o t h e r words, a classic vicious circle is set u p . T h e state, w h e n weak, is perceived to be partial, so traditional loyalties are aroused, a n d further weaken it. E n o u g h has b e e n said, perhaps, to emphasize the importance of including traditional g r o u p loyalties in the analysis of corruption. It is customary to invoke "market pressures" to explain western commercial behavior, while "peer g r o u p pressures" are used to explain individual activity. Similarly, it would seem appropriate to include "traditional g r o u p pressures" in analyzing corruption in developing countries, in Asia as elsewhere. Nevertheless, it must be emphasized that such pressures are perhaps best seen as permissive a n d supportive, n o t determinant. More i m p o r t a n t is the presence of opportunities, which usually means money. T h e m o r e of it that is controlled by public officers, the m o r e will stick to their fingers.

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Reform T h e enquiry presented above into the factors making for corruption does n o t imply c o n d o n i n g . It remains the case that the eventual goal must be to distance public officers from activities that lend themselves to extortion, bribery or fraud. This process is already u n d e r way in some developing countries, as they expand their market economies, a n d discard the permits a n d licenses that were an invitation to extort bribes. Private businesses so created may well b e c o m e a pressure g r o u p for probity, insisting that their taxes b e n o t misappropriated. By the same token, the m o r e the state b u d g e t is drawn from internal rather than external sources, the greater the pressure to curb corruption. As an example of what may b e d o n e o n e may refer to a measure taken by the I n d o n e s i a n g o v e r n m e n t in the 1980s. T h e ports, particularly that of the capital, Jakarta, h a d became notorious for the extortion exercised by customs officers. No solution was found until the government e n t e r e d into a contract with an international firm to examine — for customs purposes — at the ports of lading, containers destined for Indonesia, which then e n t e r e d the country without examination. However, o n e should also be aware of the political difficulties in the way of removing public officers from control over the economy. T h e case of Indonesia shows the problem in acute form. To remove controls, in I n d o n e s i a n eyes, is to move to a totally privatized economy. As they see it, this would have o n e major consequence: the c o m m a n d i n g heights would b e held by the sino-indonesians who are, after m o r e than a half-century of i n d e p e n d e n c e , still m o r e a d e p t at doing business than most o t h e r Indonesians, a n d who would exclude them. If the only way to prevent this is to retain g o v e r n m e n t c o n t r o l of t h e e c o n o m y with t h e a c c o m p a n y i n g corruption, then so be it, they argue. T h e r e can also be grounds, of a general welfare nature, for retaining control over economic activity. As an officer of India's Vigilance system p u t it to me, when we were discussing corruption in i m p o r t licensing:

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"We could indeed get rid of it at a stroke simply by putting licences up for auction. What would be the consequence? One of the two largest Indian enterprises would make a successful, if expensive, bid for the entire quota and use its monopoly power to recover the cost by putting up the price of goods imported. This would place them beyond the reach of the poor. We prefer to maintain the system of import licences and to try to control the concomitant corruption." 6 In any case, removing corruption opportunities is a necessary, b u t n o t sufficient, m e a s u r e . T h e u n s c r u p u l o u s will always find opportunities not evident to anybody else. Elsewhere (Palmier, 2000) it has b e e n suggested that probity is a function n o t only of removing such opportunities, b u t also of the selection of public officers, their character formation, a n d their morale. T h e object is the cultivation a m o n g at least the most senior ranks of a sense of honor, so that the notion of corruption is r e p u g n a n t , a n d the corrupt when found incur social ostracism. To consider morale first, public officers in developing countries are paid poorly c o m p a r e d to others with comparable training, a n d an i m p o r t a n t step in the development of high morale is the payment of adequate, even generous, salaries. However, these e n c o u r a g e h o n e s t y only after c o r r u p t i o n opportunities have b e e n removed, otherwise matters remain m u c h as they were. T h e r e seems n o particular reason why the corrupt should b e c o m e honest merely because they are given m o r e pay; this can always be rationalized as insufficient. T h e difficulties in the way of reform should n o t be u n d e r estimated. P o o r salaries are d u e , a m o n g o t h e r reasons, to the superfluity of public officers. It may well be true that fewer better paid would be at least as productive as the large n u m b e r s now employed. T h e difficulty, however, is that before industry a n d c o m m e r c e are well d e v e l o p e d , g o v e r n m e n t s often see public employment as a means of absorbing the educated, a n d so removing possible disaffection, while winking at corruption. O n e answer may be n o t to attempt to clean u p the entire government service, b u t to concentrate only o n the senior ranks of decision makers, removing 6

Personal information. Interview, July 1974.

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t h e m from o p p o r t u n i t i e s while substantially i n c r e a s i n g t h e i r salaries a n d so, o n e would h o p e , raising their morale a n d resistance to corruption. At least as important, if n o t m o r e so, is the character of public officers. What seem required in many developing countries, in Asia as elsewhere, are formative institutions that encourage greater loyalty to the g o v e r n m e n t service, at t h e expense of traditional groups. T h e English East India Company m e n t i o n e d above, having removed opportunities for corruption a n d m u c h improved the salaries of its officials, t h e n established a college to inculcate values of probity a n d loyalty. T h e final result was the Indian Civil Service, which became renowned for its honesty. T h e object of such institutions is to instill loyalty to the government service and its values and traditions. This is not a matter of developing loyalty where there is n o n e , b u t of weakening traditional ties in favor of the nation a n d the public service. In several of the great powers this is achieved by residential e d u c a t i o n a l institutions inculcating their charges with loyalties away from the traditional primary group, the family, a n d towards created institutions such as sports teams a n d the institution itself, as a preparation for the giving of loyalty to the individual's future employers. Taking Indonesia again as a n o t untypical Asian developing country, o n e finds that the formative residential institutions, which exist, are of a religious, a n d therefore divisive nature, such as Muslim ' p e s a n t r e n ' a n d Catholic and Protestant schools. T h e universities are not residential, a n d n o n e may claim a truly national intake; all have a p r e d o m i n a n c e of local students. In brief, the strength of traditional loyalties meets n o resistance from inculcated allegiance to the nation as a whole. T h e Indonesian a r m e d forces, it is true, d o m e e t some of the requirements for probity. Selection to their Academy is o n a national basis (except that sino-indonesians are n o t recruited), limited to those who d o best in the most difficult subjects at high school. T h e r e is n o sign of p r o m o t i o n being influenced by ethnic origin, a n d little d o u b t of the officers' loyalty to their units a n d to the a r m e d forces in general, rather than to their traditional groups.

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Equally, their morale is quite high, a n d their salaries adequate. Unfortunately, " u n d e r the 'New O r d e r ' [1966-1998] the official, semi-official a n d private business activities of military personnel e x p a n d e d rapidly at all levels..." (Crouch, 1975) while "the army leadership... adopted the view that it was perfectly natural for officers to exploit their official positions for personal gain" (Crouch, 1988). In o t h e r words, corruption was licensed. In consequence "serving m e m b e r s of the a r m e d forces ...devote considerable energy a n d time to income-supplementing schemes, often to the d e t r i m e n t of their professional duties" (Lowry, 1996), as is perhaps evident from their operational performance. T h e improbity of former general Suharto has n o t helped, a n d in the o d i u m that surrounds the forces for their excesses d u r i n g his "New O r d e r " regime, they are in n o position to provide national leadership. W h a t seems r e q u i r e d , in I n d o n e s i a as also in several o t h e r developing countries, is the establishment a n d development of civilian formative institutions to p r e p a r e a truly national elite with high morale a n d a code of h o n o r that spurns illicit financial gains. This is of course n o t a task of a few years, b u t of generations. But there seems n o o t h e r way to cure a country of the disease of corruption.

References Crouch H (1975) Generals and business in Indonesia. Pacific Affairs 48(4): 519-540; 524. Crouch H (1988) The Army and Politics in Indonesia. Ithaca, Cornell U.P. 1988: 285. Day C (1966) The Dutch in Java. Kuala Lumpur, Malaysia, Oxford U.P. (Reprint of 1904 edition by Macmillan, New York): 104. Hadisumarto D (1974) The Indonesian civil service and its reform movements. DPA dissertation, School of Public Administration, University of Southern California: 269, n. 18. Hamzah A (1984) Korupsi dalam pengelolaan proyet pembangunan [ Corruption in the Management ofDevelopment Projects]. Jakarta, Akademika Pressindo: 59. Jhabvala RP (1987) The Nature of Passion. Harmondsworth, Penguin.

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Jakarta Post, daily newspaper, Indonesia. Kompas. Jakarta, Indonesia, daily newspaper. (1951) Kepartaian di Indonesia [Parties in I n d o n e s i a ] . Jakarta, Kementerian P e n e r a n g a n Republik Indonesia [Ministry of Information, Republic of I n d o n e s i a ] : passim. Lowry R (1996) The Armed Forces of Indonesia. St Leonards, NSW, Australia. Allen & Unwin: 144. Mrazek R (1994) Sjahrir: Politics and Exile in Indonesia. Ithaca, Cornell, Southeast Asia Program: 138. Palmier L (1983) Bureaucratic c o r r u p t i o n a n d its remedies. In: Clarke M (ed.), Corruption: Causes, Consequences and Control. L o n d o n , Frances Pinter: 208; 207-220. Palmier L (1985) The Control of Bureaucratic Corruption: Case Studies in Asia. New Delhi, Allied, a: 107; b: 4, 5; c: 103, 109. Palmier L (2000) C o r r u p t i o n a n d probity. Asian Journal of Political Science, 8(1) J u n e : 10, 11. Simis K (1982) USSR: Secrets of a Corrupt Society. L o n d o n , J M D e n t & Sons: 58 a n d passim. Soedarso B (1969) Korupsi di Indonesia [Corruption in Indonesia]. Jakarta, Bhratara, (a): 66; (b): 75. Spear P (1975) Master of Bengal: Clive and His India. L o n d o n , T h a m e s a n d H u d s o n : 110, 111. (1971) Undang-undang tentang pemberantasan tindak pidana korupsi [Laws Concerning the Fight against Criminal Corruption]. Jakarta, P.T. Intibuku Utama: 40. Wade R (1989) Politics a n d graft: recruitment, a p p o i n t m e n t a n d promotions to public office in India. In: Ward PM (ed.), Corruption, Development, and Inequality. L o n d o n , Routledge: 73-109; 107. Willner AR (1970) T h e neotraditional accommodation to political independ e n c e : T h e case of Indonesia. In: Pye LW (ed.), Cases in Comparative Politics: Asia. New York: 242-306; 260. Wraith RE & Simpkins A (1963) Corruption in Developing Countries. L o n d o n , Allen & Unwin: (a): 50; (b): 34.

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Chapter 5

Is the 21 s t Century 'the Age of Asia-Pacific Region'? Hopes and Expectations as Viewed from East Russia

Anatoly Korchasin and Alex Ivanov

Introduction Many scholars and practitioners, politicians a n d economists, lawyers, journalists a n d o t h e r experts, observers, investigators of social processes in the world have t h o u g h t of the 21 s t century as the coming age of Asia, or to p u t it m o r e precisely — of the AsiaPacific region. It was n o t a coincidence that the 12 t h international congress o n criminology, o n the eve of the coming 21 s t century (Seoul, 2 4 - 2 9 August, 1998), was organized u n d e r this symbolic n a m e a n d for the first time was held in Asia (The 12 t h international congress o n criminology). What should we expect now, after the 21 s t century has b e c o m e reality? A brief look at some trends in countries, which, in o u r opinion, have h a d a leading role in the Oriental region — China, J a p a n , s o u t h e r n Korea, a n d Russia — will help o u r evaluations. It is regrettable that Russia in terms of its economic development has steady b e e n left b e h i n d by o t h e r countries. This can bring catastrophic consequences as we may easily lose a part of the country, for instance Siberia a n d the Far east. Certainly by now, in the Russian far east, the businesses either d o n o t belong to Russians, or they

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have b e e n even oriented o n China (and they account for some 30% of region's GDP). In economic terms we can single out three models of development of m o d e r n market systems: 1. "the neoliberal model" is considered to be the only o n e that is able to ensure the growth of GDP; 2. "neostatism", presupposes an active impact of the state on economic processes (as experienced by J a p a n , or South Korea); a n d 3. "neocorporativism". This m o d e l has b e e n used in the countries of n o r t h e r n E u r o p e a n d it is known for its high level of state costs. Apparently the strategic aim in Russia was defined by the present president to remove oligarchy from the power that was formed by the time of the ex-president Yeltsin. T h e activity of the president V. Putin has b e e n to a great extent defined by that real political force in which h e seeks his support: state apparatus, a n d the enforcement bodies (structures). The system of bureaucratic capitalism has o n e gross feature: it is economically n o t effective. T h e supporters of the state's impact have by now h a d high chances to lead the country, but democracy a n d the support of the European democratic way of development are m o r e preferred (Naumov O, 2000). Even so, we find that the most complicated counteractions against free enterprise are criminal organizations, a n d the corruption of state officials.

The Definition of Corruption Russian a n d western scientists were going in different ways in defining corruption. T h e former generally used a definition that is a generalization of all the known ways of corruptive actions, connecting this to t h e definitions of 'an official a n d mercenary profit' — it stresses the criminological aspect of studying this problem. T h e latter g r o u p inclined towards aspects of political sciences a n d so e x p a n d e d the notion of corruption 'to the deviant behavior of political elite'. T h e results of c o m p a r i n g the foreign a n d Russian

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determination of the essence a n d definition of certain interest. H e r e we can single out similar features. are:

the special socially privileged position of empowered subjects as the main participants of corruptive relations; the illegality of their actions; at the base level of the illegality of corrupt officials there are personal a n d g r o u p interests a n d corporative interests, connected to seeking for their ownership of the good. T h e distinguishing features are:

•

•

an a p p r o a c h to the defining of the subject structure of corrupt officials (if for the Russian investigators such are "the persons empowered to perform state functions a n d persons equated with them", against the western concepts of such persons who are the representatives of political elite); the definition of the 'good', which the corrupted officials are seeking to own (the representatives of Russian approach define it as property or non-property goods, the foreign persons define these as State resources).

T h e Russian a n d western approaches to investigating the problem of c o r r u p t i o n should be u n i t e d as they are p r e c o n d i t i o n e d by the social a n d legal n a t u r e of this p h e n o m e n o n . In m o d e r n sociology a n d political sciences corruption usually is considered to be the deviant behavior of socially privileged groups, a n d so we can thus begin to explain a great n u m b e r of its forms. T h e starting p o i n t of investigating of the deviant behavior of c o r r u p t officials should be the c o r r e s p o n d e n c e (or not) of their activity to the social n o r m s a n d evaluation systems in the society a n d the state (Volzhenkin B, 1999). T h e following features characterize the legal nature of corruption: • •

specificity of public status a n d the legal status of corrupt officials; the perversion of the c o n t e n t of legal relations;

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the illegal activity of participants of c o r r u p t legal relations c o n n e c t e d with using the resources of the society a n d the state; high latency a n d great n u m b e r of forms of display of corruption.

Corruption as legal p h e n o m e n o n is an abuse of public power a n d the over-use of one's status by an empowered person. This is displayed in the illegal use of the resources of society a n d / o r the state for personal, group, or corporate interests (Luneev V, 1999; Garayev & Selikhov, 2 0 0 1 ) . T h e full a p p l i c a t i o n of t h e laws c o u n t e r i n g corruption, which criminalize illegally obtained money, would help to the "clean the h a n d s " of public officials. These laws have b e e n applied in the USA, J a p a n , Italy, Great Britain a n d o t h e r countries, where the leading principle is: "authority is the basis of the power". In Russia however, power is considered to be the basis of authority.

The Main Organized Crimes in the Far East of Russia Criminal Organizations Perhaps there is n o exaggeration in saying that the process of surviving, into which the folks of the previous USSR a n d Russia have b e e n thrown, has created a very perverse situation. O n o n e h a n d , the thrusting by all mass media of a shameless seduction (corruption) of folks has resulted in a bifurcation because the main propagation can be r e d u c e d to a scheme: all for myself, n o t h i n g for the society (state)- it is r o u g h individualism. O n the o t h e r h a n d , because of the pressure of antinational governmental programs, the survival of an individual, apparently, has b e c o m e impossible. A n d so, in spite of the expectations of the organizers of the breakdown of, a m o r e or less, legally governed country, there still came a unification: b u t already at a criminal level, as a result of banal reason — it is easier to survive togetherl Thus, in the searching of an antinational government to separate the people, it (the government) itself is gradually b e c o m i n g the fiction, because the people, o u t of their practical n e e d to survive, go over to an illegal way of life. Now

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a m o r e a n d m o r e powerful "state within the state" is being created. This, in a short while, thanks to the shortsighted vain steps of the world government, will throw down from the stage the presently unnecessary antinational government. This threat is so real that now a b o u t the "Russian mafia" (to p u t it exactly — organized crime) is described as a serious competitor in the re-shaping of world's economy a n d territories — in all countries, especially in the developing ones. Strictly speaking, there is n o t h i n g strange a n d unusual in it. It is simply the ripening harvest of what h a d b e e n planted d u r i n g the process of breaking down Russia. A mighty state comes out of the shadow to the light, directed by the beast's laws, where its own laws act: a n d so this y o u n g p r e d a t o r becomes d a n g e r o u s for the old beasts. O n the far east of Russia, as everywhere, organized crime is developed in all directions. T h e displays clearly show the spreading of the criminal m o n o p o l y in the as-yet shadow state. At the same time, similar to processes in o t h e r countries, the greatest players take over those firms that are nearest to the profit sources. A n d if there is profit that means that there is a further connection to the economic administration. For the far eastern region the most typical sectors of organized crime are: • • • •

natural raw materials (timber, metals, oil products; reserves offish a n d o t h e r sea products) a n d financial machinations, construction business, trafficking in everything — b e g i n n i n g from natural resources a n d motorcars a n d e n d i n g with h u m a n beings!

T h e r e are n o reliable statistics available — b u t according to the evaluations of the Ministry for H o m e Affaires (MVD) organized crime controls 4 0 - 5 0 % of the country's economic sectors. O t h e r evaluations only increase this figure. They suppose that the criminal syndicates control over 50 p e r c e n t of Russian banks. T h e lawlessness can take worse forms, which lead into the vicious circle of impoverishment a n d greediness. This is m o r e characteristic of the farthest a n d consequently m o r e badly governed regions of the

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country, for instance Primorye. T h e so-called 'thief in law' "Jam" (Vassin Evgeny Petrovich) is considered to be the shadow governor of the far east: h e practically single-handedly controls over Far Eastern "obshchak". According to the analytical center of MVD of Russia h e is o n e of the ten of most authoritative 'thieves in law' in Russia. Annually, in the exclusive economic zones of Russian Far East, about four millions of tons of bio-resources are shoveled out of the sea, yet the legal export of sea products consists only of o n e million tons. T h e illegal gap — is m o r e than two million tons, b u t in the Russian market, only a b o u t ten p e r c e n t of the p r o d u c t remains. Annual losses for the country reach to a b o u t two millions of US dollars. T h e stealing from inside of the fleet, especially m a i n fishing o n e , gained h u g e a m o u n t s for the perpetrators. By the beginning of 1998 there were 1135 commercial companies registered in the region, which also h a d 2629 fishing ships. By the e n d of that year their n u m b e r was r e d u c e d by 530 units, a n d that process has b e e n "successfully" c o n t i n u e d (Reznik B, 1997; 1998). However, the illegal timber business — as a kind of criminal trade — appeared in Primorye after 1992, a n d since that time has reached an impressive m a g n i t u d e . T h e total volume of illegally p r o c u r e d timber across the region for o n e year comprised, according to some evaluations, about 1.5 millions of cubic meters. O n e of Chinese firms in the town of Nakhodka, having sold timber to J a p a n during 1998, gained US$5.5 millions of n e t profit, b u t their tax liability in Russia was... 10 rubles 47 kopecks! (Veterkova & Rudenko, 1999). T h e main displays of organized crime are as follows: Availability of such criminal societies the base of creation for which is n o t a c o m m o n criminal activity b u t the c o m m o n interests of its corporation, e n l a r g e m e n t a n d so o n p r e p a r e d for it the most favorable conditions. Availability of leaders from a criminal e n v i r o n m e n t a n d o t h e r persons practicing widely organized criminal activity ("thieves in law", "authorities", "warders", "petitioners" etc.). Crimes, committed in coordination with each o t h e r (exchange of killers etc.).

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Striving to widen the use of institutions of state a n d civil society (funds etc.) in criminal aims. Organized crime of Russia a n d its activity have acquired a m o r e distinctive transnational nature (Criminality..., 2001). Forcing the criminality o u t of business, h i n d e r i n g it coming to power, using severe measures by state organs ("cleaning-up" in Novorossiysk, Yekaterinburg, Krasnoyarsk region) show us that such a policy is possible. However, the opposition of the official society to the criminal society should be accomplished n o t only t h r o u g h a narrow legal nature, b u t also by economic a n d spiritual means. T h e characteristic feature of fighting organized crime u n d e r such conditions d e m a n d s a realization of the following measures in a system: Liquidation of organized criminal structures as such; Prevention, revelation a n d isolation of organized criminal activity; Revelation, cutting off the m o v e m e n t a n d confiscation [on the basis of law] all criminal funds, a n d n o t letting t h e m be legalized; Restoration of social relations damaged by the organized crime; Education of people, particularly the growing u p generation, in the spirit of an u n c o m p r o m i s i n g attitude to antisocial evil. T h e r e must be an assurance that: a) we might be guaranteed a complex of measures for the fight against criminality; b) we are intolerant of b e i n g carried away in some periods by the totality of measures of crime prevention; a n d in others by a reliance only on law enforcement, primarily by punitive measures (Dolgova, 2001).

Corruption of Officials T h e total n u m b e r of the state apparatus consists of 333,232 "units" (including 24,904 "units" of central apparatus). For these "units" the b u d g e t gave 39,727 millions rubles. This may seem a large sum of money — b u t it has b e e n known since the time of Peter I that

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officialdom (red tape) in Russia is ineradicable. In modern times the supreme power has undertaken many different reforms, reorganizations and staff reductions — thus the above sums are not enough. Acting against the State, it is estimated by officers of law enforcement bodies [who are engaged in fighting corruption], businessmen have to pay for the services of officials from 20 to 50% of their profit. Helpfully some foreign secret services have filed many volumes of dossiers for the Russian corruptive officials. In the draft law "About the fight with corruption" the legislator should have defined the kinds of crimes that belong to corruption, while in the new criminal procedure code of Russian federation, crimes of officials and bribery should be ascribed to the investigation competence of federal security service. A comparison of a moralistic and functional approach is evidence that corruption could not be explained only by a moral degradation of some authority's representatives. It (corruption) is an indicator of a correlation between group interests, and that it is a connection between formal and informal elements of the system of social government. They single out one more approach in the definition of causes of corruption — structural-functional. The main idea is that corruption as a deviant social behavior, and it is an unavoidable attribute of a developing society to which a weak mechanism of social control relates. Even in the USA one can observe the process of a state regulation of private undertaking in order to protect the interests of the society. In the USA and Japan there is the whole series, not only of general laws that regulate business on the whole, but a number of special laws on which basis the development of business in these countries was predicated. The comparison of criminal legislation related to the organized crime of Russia, European countries, and USA, make evident a certain trend to rapprochement of such legislation. Law making traditions mainly cause the difference. In the USA it is the law about controlling the organized crime of the 1970s. The main goal of "Status RICO" is to try to stop the penetration of organized crime into legal business. As a development of that law we see, in 1971, the adoption of the law about controlled substances

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(the latter has provided a section of legislation against the permanently active criminal enterprise). In Russia there has been an open question over several years about legislative 'fixing of amnesty' of funds "escaping" from the country — it has been discussed at the level of experts consultations. The question is pressing, if we are to believe that in country regions there are no more free funds that Moscow could divert as investments into the home economic. For instance, the parliament of Kazakhstan went further along this route, and on 14 th of June 2001 adopted the law "About amnesty of citizens in connection with their money legalization". This allowed a 'breathing space' of only 20 days for dubious funds transfer. Another way was chosen by the Ukrainian National Bank, which had prohibited the operations of the accounts of commercial banks situated in some off-shore countries: it had one-sidedly terminated contracts about the establishment of correspondent relationships. This however is not unique to Russia, we note in passing the scandal around Bank of New York that had announced the problem of changing the bank legislation in the USA. There were suggestions made to guarantee the deposit confidentiality only for American citizens, and the alien depositor-liars should be made criminally responsible and the immediately arrested. A large share of Russian funds passes through the Primorye region using so-called "one-day-firms". More and more popular to transfer funds away become barter transactions. Many businessmen like this method because it allows the factual data of the whole operation, and of all transactions, to be hidden with apparent legality. However, it should be pointed out that the pretty fashionable idea in Russia about amnesty about "escaped" funds would work only under one condition. That is, if the businessmen, in spite of their reputation, must have a guarantee that after returning the money it will not be impounded, and the businessmen themselves will not be imprisoned. The State Duma of the Russian federation has tried many times to adopt the law countering the laundering of criminal profits. We recognize that beyond Russia the main sources of "dirty" money are considered to be murder, narcobusiness and prostitution. Within

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Russia try to p u t into this "dirty money" category tax, customs a n d foreign exchange crimes. We must h o p e that invoking the help of the West against accepting "Russian criminal money" will help stem its flow from the country. T h e experts a n d the Russian population itself a m o n g the main causes that u n d e r m i n e the authority of the country in the world n a m e the economic weakness of Russia 80% a n d 67% a n d corruption a n d criminality, which have seized Russia (correspondingly 67.1% and 59.9%). The results of analysis of existing law enforcement practice bring us n o comfort-ing conclusions. We think that the measures taken for countering the economic crimes d o n o t answer the reality of the present day when the crimes in the sphere of economic activity seriously threaten the foundations of the state. Presently the West is c o n c e r n e d about three possible directions of c r i m i n a l d e v e l o p m e n t : First, t h e o r g a n i z e d c r i m e a b r o a d . Transnational groups a p p e a r to be a factor of instability a n d threat to the stable order. Second, organized crime often is so powerful that it is able to afford to establish its own "state within the state". N o less a disturbance is its "cooperation" with foreign criminal societies in the field, w h e r e Russian criminals now have their competitive priorities. J a p a n e s e gangsters groups, for instance, used the help of Russian hackers to break into c o m p u t e r databases of their law e n f o r c e m e n t bodies. A n d Russian professional killers are in great d e m a n d . Third, a n d maybe the worst, threat is h i d d e n in the merging of the apparatus of corruption with influential criminal groups. It is clear that the interests of organized criminality have global character a n d obviously are not drawn towards isolationism. But the growing concern is related to the fact that the activity of Russian a n d foreign organized criminal groups are aimed to p l u n d e r the natural resources of Russia. T h e transference of funds t h r o u g h the b o r d e r etc. would hardly be possible without the help (obvious a n d h i d d e n ) of the State structures b o t h of Russia itself a n d of neighbor countries. T h e social a n d cultural nature of corruption creates a paradox when, the daily practice of the corruption within Russia (in contradistinction, let us say, to m u r d e r ) begins to be interpreted n o t so

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m u c h as a wrongdoing, b u t rather as a n o r m of behavior. In accordance with this the society manifesting in words its resolution to get rid of such dangerous evil in reality sabotages the fight against it, b o t h o n a legislative level a n d o n the level of law implementation. Besides, the situation is aggravated by the fact that, as in China where the high-ranking officials of state a n d party apparatus are i m m u n e a n d 'above the law', so it is in Russia that highranking officials have the possibility to avoid criminal p u n i s h m e n t (Folsom etal., 1992). T h e true foundation of power lies in the spiritual respect a n d trust of people toward the government a n d of government toward the people. Each side should recognize, by its own sense of justice, the sense of justice of the o t h e r side, a n d so m e r g e with it to create a sense of unity. T h e exit from the "criminal trap" may be found in a perceptive complex decision relating the bi-united task of effectiveness a n d humanity in the fight against the continuously growing destructive h u m a n behavior. This rests in e x p a n d i n g a n d d e e p e n i n g social a n d legal control based o n the laws a d o p t e d in a democratic way (Luneev, 2001). It seems that the fate of the "Dry Act" in the USA is in store for Russian a n t i c o r r u p t i o n measures, as is the amnesty of illegally obtained profits (Sacks, 2001). Apparently the uncertainty in the consciousness brings us to the fact that in o n e of the versions of the draft law "About fight with corruption" there are two peculiarities. First, the definition of corruptive behavior has b e e n transformed from official abuse to bribery; second, the definition of bribery was changed to bribe giving. We can note h e r e the principle mistake by the developers of the draft. Changing corruption to bribery contradicts the logic of Russian criminal legislation, where the central role in the fight with criminal displays of corruption centers in article 285 of Criminal Law of Russian Federation. It includes the c o m m o n generic definition of abuse of official power, a n d at the same time serves as a reserve for the cases when special articles do n o t provide for the official wrongdoing. T h e latest version of the draft law "The bases of anticorruption policy" tries to eliminate this imperfection. In the explanatory note to the draft of this federal

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law it has b e e n stated that corruption consists n o t only of actions c o n n e c t e d with bribery (the giving a n d taking of bribes) by state officials, state a n d municipal officers, b u t does also consist of o t h e r abuses of persons having a public status c o n n e c t e d with illegal obtaining (appropriation) by such persons of properly, services or privileges contrary to the interests of their service (Mishin, 2000; Project, 2001).

A Short Overview of the Situation in the Far East Countries beyond Russia How d o the countries of the far east try to solve the problem of corruption? Which trends are real processes in those countries, a n d what should we expect from t h e m in the current "Age of the Pacific region"? T h e countries — China, J a p a n , South Korea — have recently b e e n characterized by some stability in their comparatively low rate of " c o m m o n " criminality: a b o u t 4—5 times lower than the related data of western countries (Korchagin & Ivanov, 1999). About o n e a n d a half centuries ago, b e g i n n i n g from the sixties of the 19 t h century after the western powers h a d contributed to final termination of self-isolation of the Far East countries, some of the politicians of those countries analyzed why they h a d to "lose out" to the western powers. They came to a peculiar conclusion that the power of western states a n d their scientific a n d industrial progress could have strongly d e p e n d e d o n the ideology of those states. Having attempted to accept some western European legislation a n d the basics of Christian culture the far east countries, really, began to d e m o n s t r a t e unusual changes in their social a n d economic development. Maybe their main achievement was the gain of democratic freedom, which became the basis for the potential development of people. But the excessive enthusiasm over the outer manifestations began gradually to bring a loss of i n n e r values. After that, many of politicians began to connect the decay of morality, a n d growth of the level of crime in their countries, with the influence of the same aspects in western civilization, n o t i n g their negative features (Ivanov, 1999).

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Moreover the moralization of law is fraught with negative consequences. On the one hand the dissemination of moral evaluation for the law contradicts the principle of autonomy of these norm-regulative formations. On the other hand the law cannot be excluded from the influence of moral evaluation. Here we could presume that the state power and the private lives of citizens are closely interconnected. The extent of state-law regulation of private life depends on the certainty of its influence: the outer (functional) aspects are regulated by the law, the inner (ontological) by other social norms (Baranov, 2000). Here we have also to take into account some negative factors of globalization, which is sometimes performed by inappropriate methods. Unjust distribution of goods from globalization generates social tension and threatens conflicts on regional, national and international levels. The West having less than 15% of Earth's population controls over 70% of world's production output, trade, and consumption. The social stratification according to numerous criminological investigations supports crime-generation. Among other problems of globalization we could also cite potential regional or even global instability because of mutual dependence of national economics at a global level, as well as fear, that the control over the economies of separate countries can pass from sovereign governments to other hands,

including here are the more powerful states, multinational or global corporations and international organizations. Due to this fact some scholars see in globalization an attempt to undermine the national sovereignty (Korchagin & Ivanov, 1999; Ivanov, 1999). The globalization of criminality, and the appearance of Russian criminal groups on the "markets" of Asian Pacific region has become a severe reality for the Russian law enforcement bodies. Today in the territories of the far east there are 149 major criminal groups, and 40 of them are "international" ones. The influence of their activity upon our region is quite traditional. The poaching, fishing, and smuggling of currency related to the consumption of sea products have already brought to our notice, in so far as their prices in Russia have been dictated by the aliens. Meanwhile, there were only 17 criminal cases initiated successfully involving ships

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captains — of Russian, J a p a n e s e a n d Chinese ships that "traded" in Russian waters. As a result only eight m e n were sentenced, which is certainly comparable to a d r o p in the ocean. "In o r d e r to make our efforts m o r e effective Russia has to finalize intergovernmental a g r e e m e n t s with C h i n a a n d J a p a n " , p o i n t e d o u t t h e g e n e r a l prosecutor, deputy K. Chaika. Not less alarming is a n o t h e r trend, which has b e e n fashioned over a long period — it is the transformation of Russian Far East to be an international transit corridor for narcotics. Even now we are unable to make a powerful e n o u g h barrier against the flow of efedron, which comes to Russia from China (Novak, 2001). T h e process of globalization provokes the establishment of some symbiosis of economical, organized and transnational crime, which is m o r e d a n g e r o u s than all currently existing forms of organized crime even if taken together, because it inherits a destructive capacity from the existing kinds of organized crime b u t now in a concentrated form. We already have observed how the organized criminal associations actively pass from violence to m e t h o d s of economic activity a n d how they learn how to master transnational relations. If the process of that m e r g i n g continues in the same direction t h e n the whole m a n k i n d runs risk awakening u n d e r a new invisible power controlled by a small g r o u p of criminals. Taking into account that retaining a h u g e population of their countries in obedience has for the governments a specific difficulty, the latter very often c o m e to conclusion that the way o u t of their "corruption dead-end" a n d "vicious circle" of crime lies in r e t u r n i n g to their national traditions, cultivating the positive relationships in their society. In J a p a n , for example, in order to fight the corruption of the officials, the government tries to develop new ethics codes o n the basis of the moral principles of the former nobility. This has b e e n derived from the well-known code of H o n o r of Samurais "The way of the bushido" (Kolodkin, 1996). In China, the development of the educational a n d cultural levels of Chinese population, plus the demonstrative factor (becoming acquainted t h r o u g h cinema, radio, TV, tourism etc. with the way of life in o t h e r countries) have caused explosive changes in the growing-up needs in providing for

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m o d e r n conditions of material a n d cultural life. This growth of needs in China is n o t linear b u t an o u t c o m e the growth of population (Naumov I, 1997). T h a t is why, in addition to the n o r m s of criminal code of China, which regulate bribery, the government tries to popularize old Confucian traditions. With that purpose, an encyclopedia on Confucianism in five volumes was newly republished (Korchagin & Ivanov, 1999). Such an a p p r o a c h is typical of the countries that were u n d e r the influence of Confucianism. T h e scholars a n d many practitioners across the whole world have warned that it is very difficult to make s o m e b o d y respect the law if it does n o t contain moral-ethical implementation (Di Pietro, 1999). That is why, for instance, Antonio di Pietro affirms that we have to take into account the fact that though proposals directed to the successful opposition to corruption which come from the temporal culture, nevertheless they almost fully coincide with the canons of catholic religion. These are n o t groundless, as h e recalls, "If we want to escape the t h r e a t of destruction of the law state (Rechtsstaat), we are bound to admit, that exactly ethics a n d morals have the m a i n role as indispensable conditions for a n o r m a l functioning of the society. Without a wide dissemination of moral a n d ethical standards taken a n d shared by all, o n e can never expect either that people suddenly begin to respect the law, or that in a country there will a p p e a r a feeling of legality" (Ibid). Thus b o t h East a n d West, in their main approaches to fight corruption, u n d e r s t a n d the situation analogously a n d o n the whole, in its essence, propose o n e a p p r o a c h — the dissemination of moral a n d ethical standards shared by all.

Comparisons of Fights against Corruption — as a Way of Perfecting of Russian Legislation Actually, this work is review of t h e existing variety of m e c h anisms that influence the control of organized criminality a n d corruption. T h e i m p o r t a n c e of comparative research for Russia lies in the fact that o u r country has b e e n for a long time a multi-

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confessional, -national, -racial state. Therefore the experience of Russia in its d e v e l o p m e n t of the legislation, taken against the experience of foreign countries, can play an invaluable role for the world's community as well, in their preparation of such acts of i n t e r n a t i o n a l law, which in m o r e c o m p l e t e m e a s u r e c o u l d correspond to the essential needs of the majority of the states. Life shows that the struggle against corruption is n o t achieved only by the application of the rules of criminal law. Moreover, as it seems to us, neither can the struggle be won by the means of any o t h e r b r a n c h of the law. In effect, if we consider the p h e n o m e n o n of corruption in the b r o a d sense of the word, it is n o t simply a crime or w r o n g d o i n g — it is the condition of the c o r r u p t e d soul that has got used to living in a sin. Each country has its own culture, the folks have their own worldview, way of thinking, a n d they differentially u n d e r s t a n d such concepts as "crime" a n d "corruption". For example, in some countries the corruption is almost completely a synonym of bribery, in others it is u n d e r s t o o d m o r e widely — such as the degradation of the state authority, a n d even of society itself. T h e comparative research can be carried out, as it is known, in three various phases: 1) it is possible to c o m p a r e the legislation of the various countries; 2) t h e n we can study the legislation of o n e country t h r o u g h its historical development; a n d 3) then it is possible to compare the norms of law regulating necessary relations in different branches of the law. T h e concrete n o r m s of law (those of criminal-law, administrativelaw, civil-law, etc.) are kinds of tactical measures of influence o n displays of corruption in a society. However, in all of this o n e can assume it is as an attempt to influence the consequences, which have arisen as a result of actions already of the formed person. It seems to us, that such a "narrow a p p r o a c h " to the problem of corruption reveals a hopelessness of the struggle against it, by virtue of the n a t u r e of h u m a n essence. As a matter of fact, all m o d e r n researches of the struggle against corruption a n d official service offences are

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r e d u c e d to development of the moral a n d ethical codes for the officials. It is n o n e o t h e r than an attempt to re-form the persons who are already "deep-rooted" in their worldview a n d evaluation orientations. It is difficulty to b e n d an adult tree, as it, m o r e often, does n o t b e n d b u t breaks. We have to b e n d a y o u n g tree. In o t h e r words, o u r aim must relate to their development "from the time of the cradle" to b e c o m e persons who have anti-crime as a n o r m a l way of thinking. It was n o t e d above, that b o t h East a n d West in their m a i n approaches to the struggle against corruption similarly u n d e r s t a n d the situation and, in general, as a matter of fact, offer o n e a p p r o a c h — the distribution of the moral a n d ethical standards to be shared by all. However, the adoption of the codes of official behavior, in itself, "from above" can a p p e a r an ineffectual step. These ethics should "have taken root" m u c h earlier in the officials. H e n c e , it is important, not to rely so much on the availability of the code or collection of rules or n o r m s of behavior, which such code include, b u t u p o n the existence of the person ready to adequately apprehend these norms and to adequately react to them. Therefore, as shown in the experience of Russia a n d of o t h e r countries, with respect to the laws about corruption, perhaps an appropriate p r o g r a m of education a n d preparation of the younger generation, that is — of appropriate staff — is necessary. For it is known, that from what the youth is — d e p e n d s the future of the world. A n d just in this very case, the p u n i s h m e n t of c o r r u p t e d persons will look fairer, rather than it is now, w h e n the state makes r e s p o n s i b l e t h e p e r s o n , w h o is n o t b r o u g h t u p by it in t h e a p p r o p r i a t e spirit. Besides, the y o u n g e r person, who has b e e n b r o u g h t u p in the spirit of u n c o m p r o m i s i n g attitude to any sort of offences, even if having committed u n d e r some life circumstances a certain offence, will have internal conflict. This will in effect be a pledge of correction of the person, since the person realizes the antisocial n a t u r e of his action. As a conclusion it is possible, probably to specify, that the systemic character of corruption in a m o d e r n society should be o p p o s e d by a systemic counteraction. In o r d e r to form the anti-corruption

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mentality in a system, a regular (system) control of the external flow of the information is necessary which directly and indirectiy influences the formation of corruptive person, in which (person) the latter's personal passions a n d ambitions prevail over the public interests. As it is always desirable to study n o t ones own b u t another's mistakes, comparative researches can, undoubtedly, serve to perfect the legislation of Russia in its various branches of the law that struggle against displays of corruption.

What Should We Expect from the 21 s t Age? Observing the Trends — in b o t h Russia a n d in the neighbor countries we can foresee that a further weakening of state a n d legal control is highly likely. U n d e r visible increases currently of the n u m b e r of registered criminal organizations these increases predict m o r e latent crime. To illustrate the process, we think, it would be e n o u g h to compare data concerning Russia and China, as in these countries the observable process is m o r e obvious. T h e n u m b e r of active criminal organizations, for e x a m p l e (according to the official data of MVD of Russia) for the period 1990 to 1998 has increased almost in 16 times (from 785 u p to 12.5 t h o u s a n d ) ; the n u m b e r of the participants of these organizations has grown 5 times (from 15 thousand in 1991 u p to 75 thousand members) (Vanyushkin, 1999). T h e Chinese officials point out the sharp growth in recent years — b o t h of the n u m b e r of organized criminal groups, a n d of the n u m b e r of their members. However, c o n t r a r y to J a p a n , they have n o t observed yet m u c h obvious consolidation of gangs in criminal syndicates, t h o u g h this process is gradually occurring. According to Chinese statistical data, d u r i n g 1983-1986, when t h r o u g h the whole country serious measures o n the eradication of criminality were undertaken; they revealed 197,000 criminal g r o u p i n g with a total m e m b e r s h i p of 876000. U p to 1994 the growth was 306 p e r c e n t in the n u m b e r of criminal groups, a n d

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403 p e r c e n t of their m e m b e r s . T h e groups themselves have undergone changes as well. Roughly speaking 1986 saw the beginning of a high growth in tightly c o n n e c t e d a n d highly organized forms of u n d e r g r o u n d movements (He Bingsong, 1996). In opinion of the experts, the Russian law-enforcement bodies a t t e m p t e d b u t only r e g i s t e r e d less t h a n o n e q u a r t e r of real criminality, obtaining less than 50 p e r c e n t of guilty sentences from the registered actions, a n d they b r o u g h t to the court only o n e in ten of actual criminals (Luneev, 2000).

The Actual Transformation of Russia — to a "raw materials a p p e n d a g e " of foreign countries on the backg r o u n d of the general breakdown of national economy, will p r o m o t e the further export from the Russian territory of natural resources, sea products, metal etc. This will give economic criminality greater p r o m i n a n c e , in comparison with o t h e r kinds of criminality. And it will occur on a b a c k g r o u n d of weakening revelation of crimes a n d the incompleteness of their qualification.

The Transnationalization

of Criminality

— as a process, criminality will be s t r e n g t h e n e d as a consequence of the above two reasons. It will find expression in the increase of n u m b e r of crimes m a d e by foreign citizens, especially from China a n d Korea. This change process can be observed already. Chinese citizens actively participate in illegal export of natural a n d biological resources, especially of timber, metal, seafoods, a n d wild plants. T h e aliens will be m o r e active in i m p o r t a n d transit of drugs. During recent years, a n d it has b e e n p o i n t e d o u t by many experts, the narcobusiness on the far east has b e c o m e stronger a n d has strongly fixed its positions. Now, in selling of h e r o i n together with derivatives of h e m p , are n o t engaged at the individual "businessmen" level, b u t via the organized criminal groupings (Volyntseva, 2001).

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Russia entered the third millennium with approximately [only] three millions of the registered drug addicts. In truth, there are many more. But until now in Russia there is no clear policy on the struggle with drug addiction. It seems, that under such conditions control only by measures of law-enforcement and upon the medical character, the ways of distribution of drugs can hardly be blocked. This has been realized all over the world for a long time. The Americans, having announced the struggle with drug addiction to be a national program, invest in counter measures from US$8 to 15 billions annually. Although in the Philippines and in China (and elsewhere in Asia) there are the severest measures not only for collecting and storage, and for the use of narcotics, nevertheless drug abuse is increasing. But in Russia all national counter-measures programs are reduced only to conversations about necessity of serious changes in the criminal law, criminal procedural and administrative legislation. It is not enough. Criminal groups for example, of the Far East will continue strengthening cooperation with local criminal organizations and maintain their "pressure" in foreign territories, especially in Southern Korea, China, and the western coast of USA etc. From our viewpoint this is the Pacific Rim. The Process of Corruption

— of bodies of authority and management, law-enforcement bodies will get its due rewards. Under conditions of the deformation of power, the continuation of a serious crisis situation in the economy, and in the absence of an integral system of measures of struggle against corruption (as well as in the absence of a comprehensive specialized law) we can hardly expect any radical change in the counteraction to this most dangerous phenomenon. Corruption, as an obligatory component of the organized criminality, is mostly observed in the economic sphere. As more and more economic disputes are settled with attention of lawenforcement bodies and their use of legal methods, it is no wonder

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that the corruption is e n h a n c e d in those institution using m e t h o d s , i n h e r e n t only in t h e m . O n e of such m e t h o d is bankruptcy, which in its present condition, as the chairman of arbitration court of Khabarovsk Territory Serov N. frankly has admitted o n a hearing in the Regional Duma, becomes a regrettable means of redistribution of property a n d the elimination of the competitors (Ivanov, 1999). However corruption prospers n o t only injudicial sphere. As the deputy of the State D u m a Boris Reznik has declared, every third corruption crime in Russia is c o n n e c t e d with the illegal circulation of drugs. Even people with diplomatic passports are engaged in this business. In Khabarovsk a case recently took place, when over forty kilograms of industrial h e r o i n were withdrawn from the citizens of DPRK. Further, quite often even employees of law-enforcement bodies participate themselves in transportation of drugs. T h e r e are cases, w h e n the revealed drugs were n o t destroyed b u t distributed t h r o u g h law-enforcement bodies.

Criminality in thejuvenile

Population

there will be further growth of criminality in thejuvenile population and, p e r h a p s — a sharp o n e — will take place. Nowadays all over the Russia (as well as in the Asian Pacific countries) we observe the destruction of the institute of family. Its disintegration, degradation, weakening of family relations, irresponsibility of the parents, their cruelty a n d violence etc. are all observable. It seems that it is a purposeful state policy of these countries which actively promotes the fact that whole armies of embittered a n d h a r d e n e d teenagers have grown u p to b e c o m e the robbers a n d violators. In their turn, the 'thieves in the law' pay attention "to their work with the youth" since in these cadre lie many young leaders of the criminal underworld. As a result of a perverse change of public consciousness predicated o n the strong influence of mass media, we find the population m o r e a n d m o r e rarely perceives corruptive actions as crimes (28).

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Conclusion In s u m m i n g u p we can make a general conclusion: the criminal situation a n d that of corruption in Russia will continue to worsen. Particularly as at the present time we observe the process of transformation of Russian far east to be o n e of new world's centers of activity for transnational organized crime. In these regions a n d groups we will observe a rise in narcobusiness, in the trafficking of people, a n d of economic crime that are almost impossible to commit without corruption. T h e economic potential of the far east makes the region o n e of the most attractive in Russia to be the " h o m e " for local a n d for foreign organized crime. It is precisely h e r e that o n e can obtain a massive profit t h r o u g h t h e c r i m i n a l o r g a n i z a t i o n s t h a t have interregional a n d international criminal relations.

References 50,000 soldiers of criminal army. Novosti, June 9 th , 2000. Baranov VM & Golovkin RB (2000) State and legal impact on private life of citizens in modern Russia: Legal and philosophic analysis. Filosofiya prava, 2: 33-36. Di Pietro Antonio (1999) My Policy. Cit. according to: J\w IlseTpo AHTOHHO. MOH nonHTHKa. U,HT. no: HTanna - onepau™ "HHCTHC pyKH" COCT. B.A. BaimaH; OTB. pea\ Cepa;>KO POCCH. - M., K)pimHHecKnft /JOM "IOCTHUHH(})OPM", C. 61. (- 72 c.) (c.

62).

Dolgova AI (2001) Criminality in Russia and Problems of Struggle with It. In: Dolgova AI (ed.), ITpecTynHOCTi, B POCCHH H npo6neMH 6opb6bi c Heft. IIOA pea. npocjteccopa A.H. .ZJonroBOH. - M., PoccHHCKaa KpHMMHOJiorHHecKaa accouHanHJi: 41-45. Dolgova AI (2001) Criminality, its kinds and organized crime. Presentation to the Conference Problems of Struggle with Criminal Market, Economic and Organized Crime. /JonroBa A.H. IIpecTynHOCTb, ee BHflti H opraHH30BaHHaa npecTynHOCTS. IIpo6jieMbi 6opb6bi c KpHMHHajiBHMM PBIHKOM, 3KOHOMHHecKoft H opraHH30BaHHOH npecTyiiHOCTbio. MaTepnajibi KOH(})epeHUHH. - M., PoccnftcKaa KpHMHHonorHHecKaa accomiaiiHH: 6-7. Folsom RH, Minan JH & Otto LN (1992) Law and Politics in the People's Republic of China. West Publishers: 160-161.

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Garayev RF & Selikhov NV (2001) Definition of corruption. Sledovatel, 2: 43-50. He Bingsong (1996) Interview, conducted by Roy Godson. Trends in Organized Crime 2(2): 8-9. Homenko A (2001) Bankruptcy today: A method to revive a venture or to destroy it. Priamurskiye vedomosti, March 12—18th. Ivanov AM (1999) Crime-generating a n d destructive impact of "democratization" in China, Japan and Russia. Presentation to the scientific conference dedicated to 100th anniversary of Far East State University, Vladivostok: 331-336. Ivanov AM (1999) 7b the problem of deviant behavior of juveniles in the Pacific Region Countries. Abstracts of the report to the conference Crime and Children. Moscow: 10. Kolodkin LM (1996) Corruption and deontologic measures of struggle with mercenariness. (Bushido in Japan). A presentation to the scientific conference Corruption in Russia: State and Problem, March 26-27, Moscow: 97-105. Korchagin AG & Ivanov AM (1999) Crime and Punishment in the AsiaPacific Countries. Vladivostok. Luneev V (1999) The tolerance of the authorities toward corruptive officials is brought to absurd. Chistiye ruki, 2: 26-33; Luneev W (2000) Legal regulation of social relations — Important factor of prevention of organized and mercenary crime. Report at international conference in Moscow, November. Luneev W (2001) Legal regulation of social relations — Important factor of prevention of organized and corruptive crime (Abstracts of the report). Gosudarstvo i pravo, 5: 106-112. Mishin G (2000) Struggle with bribery: Some directions of perfecting of criminal policy. Ugolovnoye pravo, 3:75-80. Naumov I (2001) Definition of "Xiaokan" and problems of increase of people's welfare. Problemy Dalnego Vostoka, 6:91. Naumov O (1999) Dictatorship of economy. Commersant, June 2 nd . Naumov O (2000) Oligarchy or autocracy? In: Democracy! The Power in Russia between Oligarchy and Autocracy, hvestiya, November 17 th . Novak O (2001) Crime does not recognize the border. Tihookeanskaya zvezda, April 3 r d . Oshchepkova T (2001) The age of criminal changes. Novosti, January 26 th . Project of Federal Law "Bases of Anticorruption Policy" (2001). Ugolovnoye pravo, 1: 87-98.

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Reznik B (1998) Through the holey net. Far Eastern fleet started to be plundered. Izvestiya, December 17 th . Reznik B (1997) Mafia and sea. Izvestiya, October 21 st . Sacks VA (2001) Social and cultural premises of corruption. Gosudarstvo i pravo, 4: 52-55. Social State of Khabarovsk Region in 2000. Khabarovskiye vesti, March 6 th 2001. The 12 th International Congress on Criminology (1998). Crime and justice in a changing world: Asian and global perspectives. Abstracts and participant's directory. Seoul, Korea, August 24-29 th . Vanyushkin SV (1999) Organized crime and directions of struggle with it under reforms in Russia. Abstract of dissertation. Moscow: 3. Veterkova N & Rudenkov V (1999) Forest lads. Novosti, February 26 th . Volyntseva A (2001) Criminal business cannot be overcome by disputes. Tihookeanskaya zvezda, March 1st. Volzhenkin B (1999) Corruption as a social phenomenon. Chistiye ruki, 1: 28-31.

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Chapter 6

Monopoly Rights and Wrongs: IWo Forms of Intellectual Property Rights Violations in Asia

Hock-Bens Cheah IPR theft hurts not only our national economy, but our world economy as well. This crime is already costing industry approximately 200 billion [US] dollars ... a year in lost revenue and nearly 750,000 jobs .... Our investigations have shown that organized criminal groups are heavily involved in trademark counterfeiting and copyright piracy. They often use the proceeds obtained from these illicit activities to finance other, more violent crimes.1 Contrary to the so-called free trade and trade liberalization principles of the WTO, TRIPs [the Agreement on Trade-Related Aspects of Intellectual Property Rights] is being used as a protectionist instru-ment to promote corporate monopolies over technologies, seeds and genes. Through TRIPs, large corporations use intellectual property rights to protect their markets, and to prevent competition. Excessively high levels of intellectual property protection required by TRIPs have shifted the balance away from the public interest, towards the monopolistic privileges of IPR holders. This undermines the sustainable development objectives that underpin [the European Union's] development policies, including poverty eradication, conserving biodiversity, protecting the environment and the realization of economic, social and cultural rights.2 Raymond Kelly, US Customs Service Commissioner, statement before the subcommittee on international economic policy and trade of the US House International Relations Committee, Washington, D.C., 13 October 1999. 2 Bob van Dillen, CIDSE Secretariat, statement to the European Parliament, Brussels, 19 September 2001.

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Introduction Intellectual property rights (IPRs) are m o n o p o l y rights created by legislative authority, with the intent to reward the owners of those rights with private benefits, for inventions a n d innovations that contribute to public benefit. 3 T h e tensions between the private benefits accrued from the monopoly thus created, a n d the public benefit i n t e n d e d by legislation, form the basis for the significant controversy over intellectual property rights violations (IPRVs). Are IPRVs a serious problem? If so, why, a n d for whom? These questions will be e x a m i n e d in relation to (a) the evidence o n the extent of IPRVs in Asian countries; (b) the recent changes in the international IPR regime; a n d (c) the responses to the international extensions of the IPR regime. T h e m o n o p o l y rights conferred o n intellectual property take the principal forms of copyrights, patents a n d trademarks. 4 Copy-right is provided automatically to the authors of original works such as books, music, movies, paintings a n d c o m p u t e r programs. Copyright was n o t aimed to protect the ideas associated with these works, only their form or expression manifested in tangibles such as publications, sheet music, a n d video recordings. T h e associated benefits include the exclusive right to reproduce the work, to create an adaptation or derivative work, a n d to engage in public performance. These benefits may extend for a period 70 years beyond the life of the author. 5 Patents are scientific a n d legal d o c u m e n t s that provide full disclosure of the technology associated with an invention. They are granted to the 'first to invent' (in the USA) or 'first to file' (in the rest of the world) basis, subject to the tests of novelty, non-obvious-

3

In the USA, the legal foundation for IPR rests with Article 1, Section 8, Clause 8 of the US Constitution, which vests Congress with the power "[t]o promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries." 4 O t h e r forms of intellectual property include trade secrets, geographical indications, industrial designs, integrated circuit design layouts, and plant breeder rights. 5 Scott (2001). For a recent survey of the literature, see Gordon and Bone (2000).

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ness a n d utility. They provide p a t e n t owners the exclusive right to exploit the invention, for 20 years. 6 T r a d e m a r k s c a n e n d u r e indefinitely, subject to r e c u r r e n t registration. They offer protection against infringement of distinguishing features such as b r a n d names, corporate logos, a n d geographic indications. This protection helps to establish a clear identity for an organization a n d its products to its customers a n d a m o n g the public at large. This offers some assurance of p r o d u c t origin a n d quality, a n d protection against confusion, counterfeiting a n d other deceptive practices. Considerable resources have b e e n devoted to p r o m o t e general acceptance of m o d e r n IPR regimes in the international trading community, a n d to establish the necessary national infrastructures for IPR p r o t e c t i o n as prescribed by TRIPs. Developed country governments a n d regulatory agencies argued that local innovation in developing countries would be encouraged as locals retained m o r e of the benefits of their own innovation, a n d that foreign investors would also be more willing to transfer technology with improved IPR protection u n d e r local laws. Thus, it was argued that higher levels of IPR protection a n d reductions in IPRVs would significantly benefit developing economies. However, there have also b e e n significant criticisms a n d resistance against these developments. These demonstrate that, contrary to conventional thinking, the p r o b l e m of IPRVs is actually a doubleedged o n e . O n o n e h a n d , there are private losses incurred by the owners of IPRs, from reduced or forfeited financial and other benefits. O n the other hand, there are social costs that result from the imposed restrictions o n the flow of benefits to the public. While the former has received greater p r o m i n e n c e , leading to substantial additions to domestic a n d international countermeasures, considerations a n d assessments of the latter have b e e n neglected. This has raised serious questions over equity, sovereignty a n d the overall impact o n the development process.

6

Park (2001, pp. 101-106).

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Intellectual Property Right Violations in Asia Violations of IPR are a global phenomenon, in the present as well as through the previous century. However, in recent decades there has been an increasingly vigorous push by American commercial interests, with the growing support of the US government, to take action against IPRVs that infringe the rights claimed by American IP owners. These efforts have led to strong American pressures for all countries to commit themselves to a uniform set of rules, or face US retribution for non-cooperation or non-compliance with these demands. In pursuit of these aims, the American firms and business associations, together with the US administration, have instituted monitoring and surveillance mechanisms to uncover and clamp down on IPRVs that impinge on American commercial interests and technological capabilities. From these efforts, the available evidence reported by American sources indicates that IPRVs of software are occurring at high levels in Asia (see Table 1). The reported levels of software piracy in 2000 are highest in Vietnam (97%), China (94%), Indonesia (89%) and Pakistan (83%). However, in 2000 the reported costs of losses of retail software revenue are highest in Japan ($1,666.3 million), China ($1124.4 million) and Korea ($302 million). The total costs for 13 Asian countries are reported to be $3,939.5 million. This compares with the reported costs of $11,750.4 million for the world. This suggests that, in 2000, approximately one-quarter

Table 1: Reported piracy rates and software revenue losses in selected Asian countries, 1994-2000 Piracy rates (%)

China Hong Kong* India Indonesia

1994

1995

1996

1997

1998

1999

2000

97 62 79 90

96 62 78 98

96 64 79 97

96 67 69 93

95 59 65 92

91 56 61 85

94 57 63 89

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Rights and Wrongs

Table 1: Reported piracy rates and software revenue losses in selected Asian countries, 1994-2000 Piracy rates (%) 1994

1995

1996

1997

1998

1999

2000

Japan Korea Malaysia Pakistan Philippines Singapore Taiwan Thailand Vietnam

66 75 85 95 65 20 20 55 100

55 76 77 92 91 53 70 82 99

41 70 80 92 92 59 66 80 99

32 67 70 88 83 56 63 84 98

31 64 73 86 77 52 59 82 97

31 50 71 83 70 51 54 81 98

37 56 66 83 61 50 53 79 97

Total World

49

46

43

40

38

36

37

Table 1 (cont'd) Retail software revenue lost to piracy (US$ million) 1994

703.8 129.1 255.3 197.3 1,190.3 515.5 121.5 23.1 70.7 56.6 117.0 137.1 15.2

1,449.4 122.1 184.7 193.3 752.6 582.3 82.5 20.4 49.2 56.6 136.9 94.4 10.1

1,193.4 88.6 197.3 58.8 596.9 197.5 79.3 22.7 31.1 58.3 141.3 48.6 10.3

645.5 110.2 214.6 42.1 975.4 197.3 84.2 18.9 33.2 61.8 122.9 82.2 13.1

1,124.4 86.2 239.6 70.0 1,666.3 302.9 95.6 31.4 27.1 44.2 154.8 53.1 34.9

3,532.5

3,734.5

2,724.1

2,601.4

3,930.5

364.0 64.5 103.1 104.5 1,399.8 510.6 66.7 10.9 40.6 37.3 112.0 67.8 3.9

443.9 122.9 115.6 150.9 1,648.5 675.3 80.6 14.2 45.0 40.4 165.5 99.1 35.1

Total for above 2,885.7

3,637.0

Total World

2000

1998

1996

China Hong Kong* India Indonesia Japan Korea Malaysia Pakistan Phillippines Singapore Taiwan Thailand Vietnam

1999

1997

1995

12,346.5 13,332.6 11,306.3 11,440.1 10,976.5 12,163.2 11,750.4

Source: BSA (1999 and 2000). * Special Administrative Region of China.

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of the total revenue losses attributed to piracy of software occurred in Asia. 7 Moreover, software piracy is n o t restricted within individual countries, as there is a significant a n d increasing regional a n d global trade in pirated products. News reports indicate the existence of distribution networks of counterfeit products with links between Asia a n d California (Evangelista, 1998; Blumenthal, 1999; Ku, 1999; Mosquera, 1999). Asian countries have b e e n criticized for the extensive piracy of foreign books, films, a n d music. Trademark violations in c o n s u m e r goods such as watches, clothes, clothing accessories, electrical goods, a n d o t h e r counterfeit products are also a significant c o n c e r n . 8 US Customs seizures relating to IPRVs associated with Asian countries indicate that China a n d Taiwan are the principal offenders (Table 2). Such developments have attracted the attention of the Office of the United States Trade Representative (USTR). T h e USTR provides various reports on the state of trade a n d intellectual property relations between the US a n d o t h e r countries, which provide the basis for corresponding policies a n d actions by US authorities. 9 T h e 7

Caution is warranted in assessing these and other estimates of IPRVs drawn from industry and related sources, as these estimates are generally based on the assumption that in the absence of the illegal copies, legitimate products would be purchased at the full retail price (see Scott, 2001). Indeed, Ho (1995) suggested that, as a form of 'marketing strategy', manufacturers may tolerate the piracy of software to enable the market to become familiar with the product; followed by a subsequent crackdown on IPRVs after a significant market demand for the product has built up. 8 Maskus (1997, pp. 13-14) noted that "A curious aspect of the debate over IPRs is that while economists devote nearly all their attention to issues of innovation, technology diffusion, and growth, the international policy arena has been largely driven by questions of trademark and copyright pirating. The latter area generates the most visible damages to firms operating in Asia and is the most proximate source of political pressure on trade negotiators." 9 These include the USTR National Trade Estimate Reports on Foreign Trade Barriers, and the USTR Special 301 Reports. These reports focus on the state of the IPR regimes among the countries that have economic and trade relations with the USA and, in particular, the manner in which American interests may be adversely affected. These reports do not focus specifically on the manner and the extent to which IPR owners in other countries may be affected by the state of American compliance with the relevant IPR requirements.

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Table 2: US Customs IPR seizures, FY1998-2000 Country of origin

Domestic (US$)

% of total value

FY1998

China Taiwan Hong Kong* India Korea Malaysia Indonesia All other countries Total

$28,951,681 $8,616,523 $6,679,329 $3,943,525 $2,966,895 $1,324,353 $1,247,140 $22,167,059 $75,896,505

38% 11% 9% 5% 4% 2% 2% 29% 100%

FY1999

Taiwan China Korea Hong Kong* Singapore India All other countries Total

$42,237,070 $16,030,463 $3,517,935 $2,538,155 $1,732,074 $1,042,150 $31,403,747 $98,501,594

43% 16% 4% 3% 2% 1% 31% 100%

FY2000

China Taiwan Malaysia Hong Kong* Singapore Korea All other countries Total

$15,101,474 $6,173,483 $3,948,187 $3,594,608 $2,983,366 $2,082,058 $11,444,350 $45,327,526

33% 14% 9% 8% 7% 5% 24% 100%

Source: US Customs Statistics. *Special Administrative Region of China.

most directly relevant document in this regard is the annual USTR Special 301 report that focuses specifically on the standing and treatment of intellectual property among America's trading partners. In the most recent report, China is cited on the US government's

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Hock-Bens Cheah Table 3: Asian countries under Special 301 10 scrutiny by the Office of the US Trade Representative (1994-2001)

Year Watch list11

Priority watch list12

1994 Indonesia, Pakistan, Philippines, Taiwan, Thailand 1995 Indonesia, Pakistan, Philippines, Thailand 1996 Pakistan, Philippines, Singapore, Thailand

India, Japan, Korea

China

India, Japan, Korea

China

India, Indonesia, Japan, Korea

China

10

Section 306 monitoring 13

Priority foreign country

The USTR has the task of identifying those countries that deny adequate and effective protection for intellectual property rights (IPR) or deny fair and equitable market access for persons that rely on intellectual property protection, pursuant to Section 182 of the Trade Act of 1974, as amended by the Omnibus Trade and Competitiveness Act of 1988 and the Uruguay Round Agreement Act of 1994, under Special 301 provisions. u T h e watch list is used as a means of monitoring progress in implementing commitments with regard to the protection of intellectual property rights and for providing comparable market access for U.S. intellectual property products. 12 Placement of a trading partner on the priority watch list indicates that particular problems exist in that country with respect to IPR protection or enforcement or market access for persons relying on intellectual property. Countries placed on the priority watch list are the focus of increased bilateral attention concerning the problem areas. 13 Monitoring under Section 306 of the Trade Act of 1974, as amended, means that USTR will be in a position to move directly to trade sanctions if there is slippage in enforcement of IPR agreements. 14 Priority foreign countries are those countries that: (1) have the most onerous and egregious acts, policies and practices which have the greatest adverse impact (actual or potential) on the relevant U.S. products; and, (2) are not engaged in good faith negotiations or making significant progress in negotiations to address these problems. If a trading partner is identified as a priority foreign country, the USTR must decide within 30 days whether to initiate an investigation of those acts, policies and practices that were the basis for identifying the country as a priority foreign country.

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Table 3 (cont'd)

Year Watch list

Priority watch list

Section 306 monitoring

1997 Hong Kong, Japan, Korea, Pakistan, Philippines, Singapore, Thailand, Vietnam 1998 Hong Kong, Japan, Korea, Pakistan, Philippines, Singapore, Thailand, Vietnam 1999 Japan, Korea, Pakistan, Philippines, Singapore, Taiwan, Thailand, Vietnam 2000 Indonesia, Macau, Pakistan, Philippines, Singapore, Taiwan, Thailand, Vietnam 2001 Macau, Pakistan, Thailand, Vietnam

India, Indonesia

China

India, Indonesia, Macao

China

India, Indonesia, Macao

China

India, Korea, Malaysia

China

Priority foreign country

India, Indonesia, China Korea, Malaysia, Philippines, Taiwan

Source: USTR National Trade Estimate Reports on Foreign Trade Barriers and Special 301 Reports.

Section 306 M o n i t o r i n g list, while six o t h e r Asian countries (India, Indonesia, Korea, Malaysia, the Philippines a n d Taiwan) are o n the priority watch list, a n d four countries (Macau, Pakistan, T h a i l a n d a n d Vietnam) are o n the watch list (see Table 3 a n d A p p e n d i x A). As a c o n s e q u e n c e of t h e c o n t i n u i n g scrutiny a n d t h e growi n g e c o n o m i c , political a n d diplomatic pressures, almost all Asian countries, from J a p a n 1 5 to Pakistan, have a c c o m m o d a t e d American pressures to amend, strengthen or upgrade their IPR regimes. Starting from a very diverse range of IPR regimes associated with very different historical experiences a n d cultural traditions (see Ang, 1995), the 15

For US concerns about Japan's patent system, see Girouard (1996).

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flurry of reforms in Asia have led to the e m e r g e n c e of IPR regimes that are b e c o m i n g m o r e similar. This development is being e n c o u r a g e d by a variety of efforts to m o d e r n i z e IPR regimes across Asia. T h e U n i t e d States has actively p r o m o t e d training programs to improve IP systems in Asia. T h e Asia Pacific Economic Cooperation (APEC) forum IPR Experts G r o u p was formed, inter alia, to p r o m o t e better IPR information, protection and administration. Advice o n IPRs has also been promoted t h r o u g h the EC-ASEAN patents a n d trademarks program. T h e AsiaPacific Industrial Property Centre, funded indirectly by the J a p a n e s e Patent Office, provides training courses for delegates from APEC countries. T h e World Trade Organization (WTO) conducts trade policy reviews a n d also provides relevant advice. However, while m o d e r n IPR systems are b e i n g i n t r o d u c e d into Asia through these and other efforts, these new systems are constrained by o t h e r influential factors in the situation. For instance, the significant levels of IPRVs in several Asian countries are linked partly to the problems in those countries of corruption, which ranges from significant to e n d e m i c (see ADB, 2000; Aditjondro, 1998; Haq, 1999; Gill, 1998; Friedman, 2000; Wingfield-Hayes, 2000). This problem is o n e of the principal factors underlying the serious e n f o r c e m e n t difficulties, even w h e r e significant i m p r o v e m e n t s in IPRP have b e e n legislated. These, a n d o t h e r related issues, can be illustrated m o r e clearly by examining the changing IPR regime in China.

Violation of Intellectual Property Rights: The Experience in China Following Ukraine, China was the second most worrying country for the USTR in 2001. China was the sole country listed for Section 306 monitoring in the most recent USTR Special 301 report. T h e USTR's concerns were described as follows: ... despite intense enforcement campaigns and senior level attention to the problem, trademark counterfeiting remains widespread, with

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large-scale production of fake products running the gamut from pharmaceuticals to shampoo to batteries. Unauthorized production and sale of copyrighted products remain widespread. A new and disturbing phenomenon is the increased production of pirated optical media p r o d u c t s by licensed plants that h a d previously only manufactured legitimate products. In addition, piracy of U.S. books continues unabated. The effectiveness of enforcement action varies from region to region, and is hobbled by lack of transparency and poor coordination among responsible police and government agencies. Criminal actions are rarely filed, the legal thresholds for prosecutions are too high, and administrative penalties are too low to deter further piracy (USTR, 2001, p. 15).16 However, significant differences in historical a n d cultural contexts have contributed to this situation. As o n e study noted, "much of the advances in the use of information technology in the Asian societies occurred w h e n there were n o guidelines, n o codes of ethics a n d certainly n o codes of accepted behavior [for IPRs]. T h e idea that monetary values can be placed on intangible items is new to many Chinese people, a n d the t h o u g h t of having to pay for expressions of ideas is certainly very difficult for t h e m to c o m p r e h e n d " (Ho, 1995). In practical terms, o n e major cause of the p r o b l e m of IPRVS stemmed from the high prices of proprietary products, which included a significant p r e m i u m over prices in t h e o r i g i n a l m a r k e t s . 1 7 F u r t h e r m o r e , H o (1995) pointed o u t that the d e m a n d for pirated products did n o t originate only from locals. Many Western visitors to H o n g Kong also took advantage of the availability of these materials 16

Fisher (1997) noted that "software piracy in China has triggered a much sterner reaction from the United States than has widespread human-rights violations." 17 For instance, it was found that "legitimate copies of the same software are retailing in America at prices around 20% cheaper than what it would cost to purchase them in Hong Kong. Thus the people of Hong Kong are paying a premium in order to obtain legitimate copies of software because the software manufacturers have decided, for various reasons to sell their products significantly more expensive than they would in America. The rationale for such policies are unclear, but what is certain is that the effect of selling legitimate software at inflated prices coupled with the low prices of pirated copies does not conform to the best environment for combating piracy" (Ho, 1995).

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to make purchases from retail outlets. These materials also find substantial export markets in many other countries. In this regard, Table 4 provides an indication of the range of commodities, as well as their relative weights, among the seizures by US Customs of pirated material related to China in fiscal year 2000.

Table 4: US Customs IPR seizures related to China, FY2000

Commodity

Toys/electronic games/stickers Watches/parts Consumer electronics Footwear Wearing apparel Sunglasses/bags Handbags/wallets/backpacks Computer/parts Lights/lamps Sporting goods All other commodities Total

Domestic value (US$)

% of total domestic value

4,444,012 2,114,226 1,922,390 1,009,208 790,620 747,056 723,040 460,463 441,962 384,198 2,064,299 15,101,474

29 14 13 7 5 5 5 3 3 3 14 100

Source: US Customs statistics.

In response, American business and government organizations have brought significant pressures to bear on the Chinese and Hong Kong authorities to curb the extensive IPR malpractices. Copyright laws in Hong Kong, introduced over a period from 19721990, emulated the United Kingdom's copyright act 1956, and the Copyright (Computer Software) Amendment Act 1985 (Ho, 1995). On 1 April 2001, Hong Kong's copyright ordinance was amended to introduce more stringent provisions against software piracy. However, following significant public concerns that the amendments had hampered the dissemination of information in enterprises as well as teaching activities in schools, in June 2001 the legislative council

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passed the Copyright (Suspension of A m e n d m e n t s ) O r d i n a n c e 2001. 1 8 As a result, the criminal provisions in the recently a m e n d e d copyright o r d i n a n c e will continue to apply, with a slightly narrowed scope, to c o m p u t e r soft-ware, movies, television dramas a n d music recordings. For copyright works other than these four categories, the criminal provisions will revert to the position before the a m e n d m e n t s took effect. In China, IPR protection laws c o m m e n c e d in 1982 with the introduction of the trademarks law. This was followed by the copyright law that came into effect o n 1 J u n e 1991. China became a party to the Berne Convention a n d the Universal Copyright Convention in O c t o b e r 1992. Also in 1992, the ministry of engineering a n d electronics industries of China formulated the measures o n c o m p u t e r software copyright registration, in accordance with the c o m p u t e r software regulations. In addition, the State Council promulgated the regulations o n the implementation of international copyright treaties (the "copyright treaty regulations"), which came into effect on 30 September 1992. Later in 1994, the Decision of the Standing Committee of the National People's Congress c o n c e r n i n g Punishm e n t of the Crime of Copyright Infringement was issued. By the e n d of 1999, Chinese courts at various levels h a d h e a r d a n d settled a total of 30,091 cases involving intellectual property. A m o n g them, 3,411 were copyright cases. H o (1995) h a d n o t e d that the laws for the prevention of software piracy in China a n d H o n g Kong were "adequate", however, there were significant lapses in their enforcement. These were attributed to several causes, including the significant differences, in historical b a c k g r o u n d s a n d cultural traditions b e t w e e n C h i n a and the West, the process of decentralization of administrative control that accompanied the economic liberalization process in China, the absence of legal protection for IPRs in the past, a n d unfamiliarity with the recently i n t r o d u c e d IPRP legislation a n d their associated legal process. 18

This is an interim measure that will lapse on 31 July 2002, to permit more permanent amendments to be formulated and implemented.

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H o (1995) also n o t e d the p r o b l e m of corruption in H o n g Kong a n d its connection to IPRVs. Mu (2000, 227-232) indicated that corruption h a d b e e n r e d u c e d significantly in H o n g Kong in recent decades, a n d this is supported by o t h e r surveys. 19 However, these surveys, as well as o t h e r reports indicate that corruption is m o r e serious in m a i n l a n d China (Johnston & H a o , 1995; Nimerius, 1997; Gong, 1997; Seattle Times, 2000), where the p r o b l e m of IPRVs also occurs o n a larger scale. 20 In this regard, however, the p r o b l e m of corruption has b e e n fueled a n d c o m p o u n d e d by the process of economic liberalization in China. In a situation where 'to b e c o m e rich is glorious,' it has b e c o m e m o r e difficult to distinguish between what is 'public' a n d what is 'private', a n d between 'corrupt' a n d 'reformed' behavior (Johnson & Hao, 1995, p p . 9 0 - 9 1 ) . Specifically, it has b e e n c o n t e n d e d that the economic reforms in China have resulted in "a system that is doubly plagued by problems attributable b o t h to the plan a n d to the market. These problems reflect a system that has failed to remove all the sources of corruption i n h e r e n t in the socialist p l a n n e d economy while o p e n i n g new opportunities for malfeasance with the addition of a partial market" (Oi, 1991, p . 145. See also C h e a h , 2000). In this context of a proliferation of a wide range of corrupt practices, it is by n o means clear in the public m i n d that IPRVs, specifically, are particularly reprehensible. Indeed, to the extent that IPRVs occur widely, at the same time as they are m a d e a punishable offense, a situation could emerge, where there is a serious disjunction between private behavior a n d official standards of morality. This situation may u n d e r m i n e respect for the law, rather than alter private behavior (see Steinberg, 1997; Palmer, 2001).

19

Transparency International provides annual reports of the 'Corruption Perception Index'. These indicate that Hong Kong ranked 15th out of 90 countries surveyed in 2000, and 14th out of 91 countries surveyed in 2001. China fared much worst in these reports; it ranked 63rd in 2000, and 57th in 2001. 20 See Guo (1998), and USTR National Trade Estimate Reports on Foreign Trade Barriers and Special 301 Reports relating to China.

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The Rights and Wrongs of Intellectual Property and TRIPs T h e theoretical a n d commercial arguments in favor of IPRs have d o m i n a t e d the scene, a n d they constitute the basis for conventional approaches to the establishment a n d p r o m o t i o n of m o d e r n IPR regimes (see Menell, 2000; G o r d o n & Bone, 2000; Park, 2001). Conventional s u p p o r t for the creation a n d protection of IPRs is based o n the a r g u m e n t s that creativity a n d innovation provide significant benefits (utility) to society, p r o m o t e scientific a n d artistic advances, a n d foster progress. T h e individuals responsible for these acts of creativity a n d innovation should be appropriately rewarded for their efforts t h r o u g h grants of IPRs, which provide the opportunity for the IPR owners to appropriate exclusively the resulting private gains for a p e r i o d of time. These rewards would increase the motivation for t h e m a n d others to engage in further creative a n d innovative efforts. In the absence of IPR grants the potential gains would be diffused a m o n g imitators a n d others, a n d incentives would n o t exist for further creative a n d innovative efforts to be undertaken, with c o n s e q u e n t adverse effects for social welfare. 21 However, these arguments have b e e n vigorously challenged. 2 2 Menell (2000, p. 163) offered the following conceptual a n d m e t h o d o logical criticisms: Intellectual property is rarely justified on one theory... . Economic theorists have produced multiple plausible models for which empirical distillation will remain elusive and unlikely to be of much general predictive value due to the heterogeneity of inventive activity, the diversity of research environments, the complexity of

21

According to Jorde and Teece (1993, p. 594), "Innovation has well-known freerider exposure and public good characteristics. Know-how leakage and other spillovers impair incentives to innovate by redistributing benefits to others, particularly competitors and users. To maintain adequate incentives to invest in innovative activity, without providing government subsidies, free-riding must be curtailed. This is how economists justify patents, copyrights, trade secrets and other aspects of intellectual property law which restrict competition." 22 See, among others, Aoki, 1993 and 1994; Patry, 1997; Alsop, 1999; Okediji, 1999; Cole, 2000; Boyle, 2000; Kinsella, 2001; and Ho 2001.

130

Hock-Beng Cheah technological diffusion, the richness a n d changing n a t u r e of real world institutions a n d the obvious m e a s u r e m e n t p r o b l e m s in c o n d u c t i n g empirical research of this type. T h e comparative advantages of various configurations of intellectual property rights, antitrust standards, g o v e r n m e n t subsidies, regulation a n d o t h e r e n c o u r a g e m e n t s for innovation are difficult to assess. T h e o p e r a t i o n of these various alternatives turn o n key assumptions... for which empirical evidence is limited in general a n d with regard to h e t e r o g e n e o u s contexts in which these issues arise... r e c e n t work has shown that the holy grail of a perfectly calibrated incentive system is unattainable. 2 3

As a c o n s e q u e n c e , it is n o t s u r p r i s i n g w h e n P a t r y ( 1 9 9 7 , p . 4) c o n t e n d e d t h a t t h e law h a s f a i l e d t o a c h i e v e its o b j e c t i v e . 2 4 E v i d e n c e from industry l e n d s f u r t h e r s u p p o r t to these criticisms. In 23

the

This criticism has been supported by Scott (2001), who pointed out that, "To date, the beauty of the copyright monopoly ... is that it has no real basis justifying its existence. Rather, the proponents of copyright make deft use, as the circumstances require, of a variety of different justifications, from innovation, to giving just rewards to the author, to promoting culture (among others). As a result of this nebulosity copyright has effectively been detached from means of evaluating and testing its usefulness with the consequence that it is difficult, if not impossible to verify the effectiveness of copyright and similar monopolies in providing the benefits they claim to provide. Further, should it be possible to contradict one of the bases of copyright, copyright proponents are able to adopt an alternative justification, given that simultaneously contradicting all justifications will be a herculean task.... Effectively, to date, copyright proponents have said to legislatures something along the lines of, 'protecting us as an industry is good for society as a whole, but we can't give you any evidence which supports us on this and, in fact, there's actually no way to even measure the benefit that such protection brings to society, so you're just going to have to trust us.'" 24 Specifically, he argued that "United States copyright law has failed [in] its essential purpose — to benefit authors — and is being shaped largely by powerful distributors and their lobbyists with the dual goals of extending a monopoly (in order to extract high prices from the public) while simultaneously depriving authors of as much money as possible (though they push authors forward, puppet-like, as the intended beneficiaries). In creating this system Congress has exceeded its authority under the Constitution, and unless checked by the courts it is likely to transmogrify copyright from a vehicle for the promotion of learning into a form of business protectionism divorced from the creation of new works" (Patry, 1997, p. 4).

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pharmaceutical industry, for instance, it has b e e n alleged that, "the real debate is about the duration a n d scope of p a t e n t protection... twenty years is an excessively long period over which to e n t r e n c h monopoly rights, especially in a sector already characterized by high profit margins. Moreover, the patent system itself is subject to serious misuse. Companies have developed a high level of expertise in prolonging the life of patents t h r o u g h m i n o r modifications that may n o t a m o u n t to g e n u i n e scientific invention. A n d while the cost of developing new medicines is high, in many cases part of this is covered by public funds a n d tax breaks" (Oxfam, 2001a, p . 7. See also Oxfam, 2001b). In relation to the software, semiconductor a n d c o m p u t e r industries, research has indicated that, "Intellectual property appears to be o n e of those areas where results that seem secure in the context of a static model are overturned in a dynamic m o d e l . Imitation invariably inhibits innovation in a static world; in a dynamic world, imitators can provide benefit to b o t h the original innovator a n d to society as a whole. Patents preserve innovation incentives in a static world; in a dynamic world, firms may have plenty of incentive to innovate without patents a n d patents may constrict complementary innovation" (Bessen & Maskin, 2000, p . 20) . 2 5 Nevertheless, the conventional arguments for IPRs have b e e n e x t e n d e d from the domestic to the international arena. T h e most significant recent international IPR developments occurred d u r i n g the Uruguay R o u n d of world trade negotiations, which concluded in 1994 with an a g r e e m e n t to establish the World Trade Organization (WTO), a n d successfully incorporated IPRs as a trade issue based on the agreement on trade-related aspects of intellectual property rights (TRIPs). U n d e r this agreement, developed countries h a d to comply with the TRIPs A g r e e m e n t by 1996, developing nations h a d to complete implementation by 1 January 2000, a n d least-developed countries are p e r m i t t e d until 2005 to i m p l e m e n t the agreement. Creating a n d i m p l e m e n t i n g national intellectual property regimes 25

For new business models based on such insights, see Ghosh (1998) and Young (1999).

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would involve substantial administrative changes a n d costs, especially for developing countries. T h e TRIPs a g r e e m e n t requires W T O m e m b e r nations to establish formal judicial channels to protect intellectual property rights, including copyrights, patents, trademarks, trade secrets, geographical indications, industrial designs, integrated circuit design layouts, a n d plant variety, a n d to enforce effective d e t e r r e n t penalties against violations. T h e changes were i n t e n d e d to p r o m o t e global harmonization of IPRs (and to curb IPRVs) based o n specified m i n i m u m standards. T h e m i n i m u m standards were derived from legislation in industrialized countries. 2 6 W T O m e m b e r nations have to comply with these standards, where necessary, by modifying their national legislation. Enforcement of a country's compliance with TRIPs is ensured t h r o u g h the W T O dispute procedure, which places the b u r d e n of proof on the defendants. Countries that d o n o t m e e t their obligations can be subjected to trade sanctions. By such means, the TRIPs A g r e e m e n t has effectively transferred responsibility to public authorities to protect the private interests of foreign nationals a n d corporations. T h e a g r e e m e n t also fully integrates biotechnology a n d pharmaceuticals into the IPR regime, whereas previously approximately 50 developing countries and several developed countries either excluded m e d i c i n e s from b e i n g p a t e n t e d , or p r o v i d e d p a t e n t s only for p r o d u c t i o n processes rather than products. T h e new regime creates a harmonized global system u n d e r which inventors are granted patents that provide exclusive marketing rights for a m i n i m u m of 20 years 26

A World Bank lead economist for trade policy pointed out that "The TRIPs standards are sometimes described as 'minimum' standards, but they are minimum only in the sense that each member must provide at least the specified levels of protection and coverage. For perhaps every member, even the industrial countries, they represent an extension of intellectual property rights in favour of intellectual property providers over users" (Finger, 2000, p. 430, emphasis added). More ominously, Finger (2000, pp. 430-431) noted that, "The mandate that the industrial countries have delivered through TRIPs is 'Do it my way!' A developing country that opted to develop its own alternative would add to the cost of implementation the cost of developing that alternative plus the cost of defending it — in WTO's political and legal processes."

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for 'new a n d inventive' products. Developing countries that did n o t have p r o d u c t patents must d o so by 2005. However, all countries must offer 'market exclusivity' (patent protection) to drugs for which patents were filed after 1995. Moreover, Article 27.3(b) of the TRIPs A g r e e m e n t requires signatories to "provide for the protection of plant varieties, either by patents or by an effective sui generis system, or by any combination thereof." This has led to the extension of an international IPR regime into the d o m a i n of living organisms. T h e TRIPs a g r e e m e n t was motivated by d e m a n d from the developed industrialized countries for better p r o t e c t i o n of the intellectual property rights of their exports a n d investments. However, there have b e e n strong criticisms directed against TRIPs. O n e criticism concerns the substantial costs, estimated at US$150 million for each of the least developed countries to invest in creating the capability to i m p l e m e n t TRIPs at the expense of h i g h e r priority development needs, such as basic education. In the face of such h i g h e r priority needs, Finger (2000, p . 436) argued explicitly that spending to i m p l e m e n t TRIPs "would n o t make economic sense." Furthermore, even if the intention of producing a harmonization of IPR regimes a r o u n d the globe were to create equity t h r o u g h establishing a form of 'level playing field' for all countries, the reality is very different. A weak state can be compelled to comply, while a strong state can opt out of compliance if it chooses to d o so, a n d there is limited, if any, means for others to enforce compliance. 2 7 More fundamentally, while the principal justification for establishing the W T O a n d TRIPs was to p r o m o t e global free trade, Okediji (1999, p. 134) has argued that "the very grant of intellectual property is a form of protectionism and, as such, is inherently contradictory 27

As Byers (2000) pointed out, "The WTO enforcement system is also highly favourable to the US. Once the judicial process has run its course, the resulting decision is enforced by 'countermeasures' — the suspension of tariff reductions that the winning country would otherwise have been legally required to provide to the loser under WTO rules. These punitive measures can be taken against any of the losing country's exports, even if they have no connection with the dispute.... The WTO's reliance on such retaliation means that non-compliance will only be punished effectively in cases where the winning party is at least as powerful as the loser, and no other member of the WTO, not even the EU, is as powerful as the US."

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with the free-trade ideal". 2 8 F u r t h e r m o r e , " c u r r e n t W T O rules, as a result of corporate lobbying, sacrifice public health for private profit. It also [creates] the extraordinary anomaly whereby the W T O , an organization charged with developing rules for 'free trade', is providing a legal framework for the d e v e l o p m e n t of corporate m o n o p o l i e s (Oxfam, 2001a, p . 2 ) . 2 9 These concerns may b e illustrated by considering examples in the field of pharmaceuticals. As a result of the changes in the IPR regime, Oxfam (2001a, p . 3) estimated average price increases for m e d i c i n e in the r a n g e of 200-300 p e r c e n t for many low-income countries, a n d h i g h e r for some key medicines. These new rules also t h r e a t e n to m a k e basic m e d i c i n e even less affordable to t h e poor. 3 0 In this regard, "Various polite formulations a n d legalistic a r g u m e n t s can be used to explain what is h a p p e n i n g in the n a m e of IP protection. But 28

Indeed, "the weaknesses of the free trade model are negatively reinforced by weaknesses in the intellectual property model, with potentially adverse consequences for consumers worldwide, but particularly in developing countries" (Okediji, 1999, p. 134). Okediji contended that "Even if the protection of intellectual property in each individual country were to produce welfare benefits within that country, the enhancement of global welfare would require not only uniformity in the rules of protection, but also that each country shares similarities in history, culture, political organization, and legal institutions so that each could potentially benefit in comparable ways from an integrated international system" (Okediji, 1999, p. 122). 29 Oxfam also noted that, "The WTO's agreement on trade related intellectual property rights (TRIPs) is a dream come true for trade lawyers, and a nightmare for the general public. Its complexity and possible differences in interpretation mean that its implications for human development and poverty reduction are difficult to decipher. Another problem is that TRIPs is arguably the most heavily politicised area of WTO negotiations. Implementation will be governed as much by power politics and corporate lobbying as by legal texts" (Oxfam, 2001a, p. 18). See also the reported observations of Joseph Stiglitz, a former World Bank chief economist, and a recent recipient of the Nobel Prize for Economics (Palast, 2001). 30 Furthermore, "WTO rules provide limited public-health safeguards, especially in the case of national health emergencies. These are hedged in by onerous conditions and, in practice, efforts to apply these measures have been fiercely contested by pharmaceutical companies, often with the backing of northern governments" (Oxfam, 2001a, p. 4).

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135

the truth is that corporate self-interest is being placed before people's lives" (Oxfam, 2001a, p . 6). T h e difficulties cited above demonstrate that, contrary to conventional thinking, the p r o b l e m of IPRVs is actually a doubleedged o n e . O n o n e h a n d , there are private losses i n c u r r e d by the owners of IPRs, from r e d u c e d or forfeited financial a n d o t h e r benefits. O n the o t h e r h a n d , there are social costs that result from the imposed restrictions o n the flow of benefits to the public. While the former has received greater p r o m i n e n c e , leading to substantial additions to domestic a n d international countermeasures, considerations a n d assessments of the latter have b e e n neglected. 3 1 This has raised serious questions over equity, sovereignty a n d the overall impact on the development process (Aoki, 1998a). In Whose Interest? Developed Country Dominance and Developing Country Vulnerabilities T h e developed countries have a strong vested interest in securing their d o m i n a n c e globally by p r o m o t i n g the adoption of an IPR regime in which they now have substantial e n t r e n c h e d advantages. This may be observed m o r e clearly by examining the efforts of the USA in this realm. US officials have sought fervently to convince developing country governments that IPR protection would be mutually beneficial. It was argued specifically that, Protecting innovation is critical to the future growth of developed and developing countries alike. There is a direct correlation between a country's protection of intellectual property — patents, copyrights, and trademarks — and its economic growth and development... . Without protection of trade secrets, without patent or trademark safeguards, countries in every stage of development will fall short of their potential. In case after case, effective protection of intellectual 31

The most prominent recent event in this regard is the US department of justice antitrust lawsuit against Microsoft Corp. The investigations commenced on May 30 1990, the lawsuit was filed in May 1998, and the proceedings have undergone a continuing lengthy legal process. See Dawson (2001) and "US v. Microsoft timeline" at http://www.washingtonpost.com/wp-dyn/business/specials/microsofttrial/ timeline/

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property has been a launching pad for domestic and foreign investment, technology transfer, economic growth, and high paying jobs.... nations that fail to protect intellectual property will be left behind (Eizenstat, 1999).32 However, such p r o n o u n c e m e n t s ignore America's own historical experience with IPRs. Post (1998) revealed that from its outset US copyright law discriminated against foreigners. I n t r o d u c e d in 1790, the US Copyright Act was applied only to citizens a n d residents of the USA, a n d the law did n o t respect the copyrights of foreigners. 3 3 O n e century later, in 1891, the International Copyright Act was passed, a n d the US t h e n agreed to provide equal treatment u n d e r the copyright law, b u t only to foreigners whose countries provided reciprocal copyright protection to American authors. Post noted that, "Even then, it must be admitted, recognition of foreigners' rights was e x t e n d e d r a t h e r grudgingly, a n d in a m a n n e r that d e n i e d foreigners m u c h effective protection for their works within United States borders." This protection was weakened significantly by the insertion of a 'manufacturing clause'. 3 4 This imposition was only 32

Stuart E. Eizenstat was US Department of State, Under Secretary for Economic, Business and Agricultural Affairs. See similar arguments by Larson (2001). Other American officials proclaimed, "We know of many instances where U.S. companies keep their latest invention off the market in developing countries because they do not want to have them unfairly copied. They make available instead older, off patent technology, for which intellectual property protection is no longer available. So the message to developing countries is this: Provide strong intellectual property protection, and the most recent technology will come your way" (Papovich and Burcky, 1998, p. 14). 33 Aoki (1998a, p. 25) noted that during the nineteenth century, the United States had the reputation of being the "Barbary Coast" of intellectual property. Lessig (2000a) observed that "Our scorn for China notwithstanding, we were, for the first 100 years of our history, a pirate nation." No hint of this background is offered to present-day developing countries by US advocates of TRIPs. 34 "This clause required that any printed book or periodical in the English language had to be printed from type set within the limits of the United States, or from plates made within the limits of the United States, from type set therein, or by a lithographic or photoengraving process wholly performed within the limits of the United States, in order for the work to receive copyright protection at all. Furthermore, the printing of the text and the binding of such books had to be performed within the United States" (Post, 1998).

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lifted in 1976 with a revision of the copyright act. Indeed, effective protection for foreigners "would n o t truly b e c o m e a part of US copyright law until 1989, with United States accession to the Berne convention o n literary a n d artistic property (and its r e q u i r e m e n t that all signatory nations provide the same t r e a t m e n t to foreigners as it provides to its own nationals)" (Post, 1998. See also Patry, 1997; a n d Scott, 2001). Thus, for the most part of its existence as a sovereign nation, the USA did n o t accord equal t r e a t m e n t to o t h e r countries, equivalent to the ' m i n i m u m standards' that it has sought to impose, since 1994 u n d e r the W T O TPJPs agreement, o n o t h e r countries, i n c l u d i n g m u c h less developed countries. This may b e related to the evolution of US interests in IPRs, in step with its evolution from a d e v e l o p i n g e c o n o m y to a global superpower. As Post (1998) explained, America's copyright policy was part of a larger strategy, designed (largely) by America's first Treasury Secretary, Alexander Hamilton, to promote the development of infant industries within the United States. Providing copyright protection for American authors only, it was felt, worked to the advantage of the growing American publishing industry; American publishers could, because of this provision, publish American versions of foreign (especially British) works at relatively low cost (since they were not obligated to pay royalties to the [foreign] authors when they did so). Much of the early history of international copyright throughout the West is consistent with this simple principle, as discrimination against foreigners was the rule, rather than the exception, in international copyright relations until the middle part of the nineteenth century.... As countries move up the developmental ladder — from importer to exporter of intellectual creations — the ratio of benefits to costs of recognizing the intellectual property rights of foreigners shifts. Exporting nations are happy, in effect, to offer the following deal to others: we will provide copyright protection for the works of your authors if you provide the reciprocal protection for our authors under your copyright law — for we have more to gain from the protection that our authors can receive outside our borders than we have to lose by offering protection to foreigners.

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Learning from this experience, it is arguable that the USA in particular, and the developed countries in general, should permit the developing countries to postpone adoption of an equivalent IPR regime until they reach a similar level of development to that reached by the USA in 1976 or 1989. This may help to redress the situation where, in 1995, the advanced economies comprised less than 20 per cent of the world's population, but they accounted for almost 60 per cent of the world's gross domestic product, more than 80 per cent of the world's scientific publications, and more than 90 per cent of the patents filed in the European Union and in the USA (Figure l). 3 5 However, the reality is that, in this situation, the more developed countries have a strong interest in broadening the acceptance of and adherence to the IPR regime that now buttresses their scientific, technological and informational dominance in the world, in the rest of the world. This would institutionalize globally a regime in which the developed countries already have a significant headstart and incumbent advantages over the less developed countries (see Table 4). Indeed, substantial public resources, support and protection are provided to promote R&D directly and indirectly in developed economies at universities, government research laboratories, and through large defense budgets with substantial spin-offs and a wide range of benefits for commercial interests in those countries that acquire the IPRs from the results of those investments, subsidies and protection. On one hand, in the face of the strong protection of the IPRs of those goods flowing from the developed countries, less developed countries are invited to engage in 'free trade'. On

35

Sachs (1999) pointedly observed that, "The role of the developing world in one sense is much greater than the chart indicates. Many of the scientific and technological breakthroughs are made by poor-country scientists working in rich-country laboratories. Indian and Chinese engineers account for a significant proportion of Silicon Valley's workforce, for example. The basic point, then, holds even more strongly: global science is directed by the rich countries and for the rich-country markets, even to the extent of mobilising much of the scientific potential of the poorer countries."

Monopoly

Population

GDP

Rights and Wrongs

Publications

Patents (EU)

139

Patents (US)

n Advanced economies • Rest of World Source: Following Sachs (1999). Figure 1: Population, GDP, scientific publications and patents in advanced economies and the rest of the world, 1995 (% of world totals).

the other hand, acceptance of TRIPs would prevent developing countries, from claiming infant industry protection to support competing products. Through such means, the dominance of advanced countries is likely to be enhanced even further by the recent expansion of the scope of IPR regime, its more systematic global diffusion, and the more rigorous enforcement measures that are being promoted. This impact may be illustrated by examining recent developments in the fields of biotechnology, and information communication technology (ICT). Through the extension of patent protection, pharmaceutical, agricultural and biotechnology firms are aggressively claiming IPRs to human, animal and plant genomes, useful cell lines and

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Table 4: Index of patent rights, 1960-1995

High-income non-Asian countries United States Austria Netherlands Sweden France Belgium Australia Germany New Zealand Switzerland Denmark United Kingdom Canada Asian Countries

Japan Korea Singapore Sri Lanka Hong Kong* Indonesia Thailand Bangladesh Pakistan India

1960-1975

3.86 3.43 3.33 2.65 3.08 3.30 2.90 2.79 3.10 2.84 2.65 2.95 2.76 1960-1975

3.24 2.87 2.37 2.60 2.04 0.33 1.51 1.99 1.99 1.68

1975-1990

1995

4.41 3.95 4.24 3.61 3.90 3.78 3.26 3.76 3.32 3.80 3.76 3.57 2.76

4.48 4.24 4.24 4.24 4.04 3.90 3.86 3.86 3.86 3.80 3.71 3.57 3.24

1975-1990

1995

3.94 3.61 2.57 3.01 2.46 0.33 1.85 1.99 1.99 1.57

3.94 3.94 3.91 3.12 2.57 2.27 2.24 1.99 1.99 1.17

Regional rank 1 2 2 2 5 6 7 7 7 10 11 12 13 Regional rank 1 1 3 4 5 6 7 8 8 10

Note: Regional rank in Asian countries is based on 10 selected countries in 1995. Regional rank in high-income non-Asian countries is based on 13 selected countries in 1995. *Special Administrative Region of China. Source: Park (2001, pp. 110-112).

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agriculturally important crop plants and livestock.36 This represents a qualitatively new form of the private appropriation of resources, and provides control over life forms. 37 More significantly, ownership rights are gained not just over individual specimens, but also of whole species (King & Stabinsky, 1999). IPRs provide the means to control access, supply and prices.38 It also provides the means for the expropriation of property rights that were previously in the public domain, including acts of 'biopiracy' (Shiva, 1997; Assisi Foundation etaL, 1998). The application of genetic modification techniques to plants and food crops, and the granting of patents for these modifications, permits corporations to increase their control over food production. For instance, Monsanto has used a combination of a legal contract and patent protection to make sure that farmers pay royalties on its genetically engineered varieties, every single cropping season. Farmers lose the right to save seeds from a current crop for planting in

36

In the USA, this process commenced with the granting of patent protection for a genetically engineered bacterium by the US supreme court in the case of Chakrabarty vs. US patent and trademark office. "The decision was very close (five to four) and was narrowly constructed with respect to genetically modified microorganisms. But it opened the flood gates, and soon Harvard medical school scientists applied for, and were granted, a patent on a genetically modified mouse. Since then, US, British and European patent offices have issued thousands of patents on genes, plants, animals and even human cell lines" (King & Stabinsky, 1999). 37

According to Wolfson (2001), "Documents uncovered in United Kingdom show that over half a million patents on genes or gene sequences have been granted or are pending. These include 161,195 patents on human genes or gene fragments, covering virtually every tissue in the body, ranging from lung tissue to light-sensitive pigment in the eye. Other patents include 152 patents on rice, patents covering 72 HIV genes, 1,331 patents on mice, 501 patents on chickens, and 11 patents on spiders. The race to patent is motivated by financial gain, because patent owners can charge royalties and fees to anyone using the genes, whether for medical research or for growing patented crops." 38 For strong criticisms within the USA against the pharmaceutical industry, see Goozner (2000) and Baker (2001).

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subsequent season. Monsanto prosecuted farmers who saved their genetically e n g i n e e r e d seed. F u r t h e r m o r e , to reduce the difficulties a n d costs of policing such infringements, 'terminator' seeds have b e e n developed to create genetically modified crops whose seed can be eaten, b u t c a n n o t be p r o p a g a t e d (Broydo, 1998; H o , et al., 2001; RAFI2001). 3 9 In addition, b i o t e c h n o l o g y also allows c o r p o r a t i o n s such as Monsanto to gain exclusive rights over the pesticides, fertilizers, a n d o t h e r chemicals involved in the p r o d u c t i o n of the p a t e n t e d crops. T h e result is the creation of a composite 'package', though bundling of a p a t e n t e d crop together with its associated pesticides, fertilizers a n d o t h e r chemicals, to which farmers may b e c o m e tied by m e a n s of design, contract a n d patent, combined with the threat of potential lawsuits in t h e e v e n t of any d e l i b e r a t e o r e v e n a c c i d e n t a l infringement. 4 0 For humans, patents o n gene diagnostic tests can impinge adversely o n medical treatment. Specifically, Merz (1999) r e p o r t e d that the monopolisation of medical testing services has the following effects: it may reduce patient access to testing; lead to inequitable extensions of p a t e n t terms o n tests a n d related discoveries; grant to p a t e n t owners the ability to dictate the standard of care for testing a n d to interfere with the practice of medicine; create conflicts of interest; a n d threatens to restrict research activities. In this regard, although patents have b e e n justified as inducements to invest in promising technologies, they can also be used to i m p e d e science a n d have a restrictive impact o n research a n d innovation (Heller and Eisenberg, 1998). Furthermore, Cook-Deegan (1998) p o i n t e d o u t that once a p r o d u c t is patented, that p a t e n t extends to any use, even those that have n o t b e e n disclosed. T h e severity of the problem d e p e n d s entirely o n the discretion of p a t e n t owners. Moreover, the terms of licensing property a n d intellectual

39

For a range of other criticisms against Monsanto, see Bensen, et al, (1997), Arax and Brokaw (1997), Papadimitriou (2001), 40 Such measures "allow these corporations to amass huge amounts of money. Biotechnology is about making money for the biotech industry" (Wolfson, 1997).

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143

p r o p e r t y are at least as i m p o r t a n t as what gets p a t e n t e d . As the US p a t e n t a n d t r a d e m a r k office does n o t d e t e r m i n e the license contents of patents, only what gets p a t e n t e d , m a n y i m p o r t a n t decisions are well b e y o n d the r e a c h of b o t h the p a t e n t office a n d the courts r e n d e r i n g decisions a b o u t p a t e n t litigation. In o r d e r to get access to a valuable database or u n p a t e n t e d cell line, for example, scientists may sign a g r e e m e n t s t h a t c o n c e d e rights to future discoveries. 4 1 Similarly, in the field of ICT, the scope of IPR p r o t e c t i o n has b e e n b r o a d e n e d significandy (Reiling, 1997). This can b e illustrated most clearly by e x a m i n i n g t h e c h a n g e s t h a t have b e e n p r o m o t e d in the USA. T h e s e changes have b e e n characterized as ' t h e copyright g r a b ' based o n a 'maximalist a g e n d a ' by IPR owners to capture m o r e legal control t h a n ever before over the p r o d u c t s that they p r o d u c e or distribute (Samuelson, 1996a). These legal measures c o m p l e m e n t a n d s u p p o r t o t h e r physical a n d technical c o n t r o l m e c h a n i s m s to restrict access to a n d the use of digital information over which IPR owners assert claims.

41

Cook-Deegan (1998) noted that "Norms governing licensing vary tremendously among companies and academic research institutions, and appear to be changing toward more aggressive enforcement of property and intellectual property rights, imposing more constraints on future discoveries based on licensing agreements. Many scientists labor under the myth that their research activities are in a category exempt from patent infringement allegations. Some are beginning to learn otherwise, as they get letters asking them to sign up for licenses on transgenic animals or research methods lest they risk being sued for patent infringement." He also warned that, "Terms in licensing agreements can seem deceptively innocent, constraining only future 'commercial' uses of research results. Those terms, however, matter precisely when the research is likely to have direct benefit in the form of products and services, that is, have some prospect of improving health or other practical use, which usually entails some commercial activity. The only discoveries that encounter the 'reach-through' provisions may be the ones that are actually useful. If those making individual decisions about licensing agreements are oblivious to their systemic consequences, medical researchers are apt to find themselves fighting an escalating battle, locked into a complex multiplayer prisoner's dilemma."

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T h e measures include attempts to prevent the physical availability of e q u i p m e n t that that provide access or the ability to r e p r o d u c e a n d distribute digital information. 4 2 For instance, w h e n digital audio tape (DAT) emerged, efforts were successful to ensure that the public was only provided access to DAT players, b u t n o t to h i g h quality DAT r e c o r d i n g devices. M o r e recently, with t h e e m e r g e n c e of digital video disc (DVD) technology, similar measures to c u r b the public's ability to r e c o r d a n d duplicate material were introduced, together with the differentiation of pre-recorded DVD material into o n e of 6 regions in the world. This serves intentionally to segment the global market for that material, to the benefit of the IPR owners. Technical measures to prevent or limit i n d e p e n d e n t recordings, duplication a n d distribution of digital material include measures such as encryption, the recent secure digital music initiative (SDMI), a n d efforts to i n t r o d u c e copy p r o t e c t i o n for removable m e d i a (CPRM), which will control copying, moving, a n d deletion of digital m e d i a o n a host device, such as a personal c o m p u t e r (Boyle, 2000a, p p . 11-12). However, technical restraints can be breached. This possibility led to the introduction of new and extended legal measures to deter efforts to breach these a n d other technical measures for IPR protection. Samuelson (1996a) warned that the new legal measures would seriously restrict the use, duplication a n d distribution of digital material. F u r t h e r m o r e , these measures would have the capability to remove fair use provisions a n d first sale rights, l e a d i n g to

42

In the pre-digital age, a similar situation emerged with Guttenberg's invention of the printing press in 1450. Then, the problem was addressed by the creation of copyright regimes in Europe and the licensing of printers and publishers. More recently, Universal City Studios and Disney sued Sony for the introduction of Betamax video tape recorders (VTRs) that enabled the public to record and copy video material that they would otherwise not have the capability to do easily. Sony won that legal dispute in 1984, and VTR recordings and duplication became pervasive.

Monopoly

Rishts and Wrongs

145

pay-per-use practices. These measures could also force Internet service providers to take responsibility for policing IPRVs by their subscribers; a n d make it illegal for anyone to circumvent the encryption a n d other technical protection measures implemented by the IPR owners (Siegel, 1999; Samuelson, 2001). 4 3 With the introduction of the Digital Millennium Copyright Act (DMCA) in the USA in 1998 m u c h of the predicted o u t c o m e has b e c o m e a reality (McCullagh, 2000; King, 2001). 4 4 O t h e r legal measures that have also e x t e n d e d the reach of IPR owners flow from the issue, since 1998, of patents for 'business m e t h o d s ' by the US Patent a n d Trademark Office since 1998, that offer IPR protection n o t only to products, b u t also to the specific means of selling or distributing them, such as the p a t e n t issued to Amazon for its ' o n e click' o r d e r i n g system (Grusd, 1999). A n o t h e r related development is the introduction of contracts through 'shrinkwrap licenses', a n d 'click-wrap licenses'. Such practices convert the act of o p e n i n g a package, or clicking "I agree" to initiate the downloading of material from the internet, into an assent to a contact with an IPR owner, o n terms a n d conditions often unclear to the recipient, a n d d e t e r m i n e d solely by the IPR owner, o n a take-itor-leave-it basis (see Nimmer, et al, 1999; McManis, 1999). O t h e r significant developments include the extension of IPRs to databases, e-books, online j o u r n a l s a n d the extension of the term of

43

Patry (1997, pp. 4-5) pointed out that, "In this decade, the 'copyright industries' have sought (usually successfully) to block the public's access to works of authorship disseminated by new technologies, until legislation is enacted permitting them to control the terms and conditions of the access. Beginning with the audio home recording act of 1992, followed by the digital performance in sound recordings act of 1994, and more recently in the 'information superhighway' proposals and efforts to encode digital video discs with mandatory copy-blocking schemes, copyright legislation is in danger of becoming little more than a codified set of industrydrafted technical requirements prohibiting all access except as approved by the corporate rights holder." 44 In December 1999, a highly publicised lawsuit was brought by RIAA against Napster, a music file-sharing website, based on the MP3 file format (Blackowicz, 2001).

146

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IPR protection: Historically, t h e r e was n o copyright p r o t e c t i o n for databases. However, new laws have e x t e n d e d IPR p r o t e c t i o n for databases in USA a n d E u r o p e . 4 5 Similar developments have also led to very grave c o n c e r n s in the publishing field for a n u m b e r of p r i n t as well as o n l i n e j o u r n a l s (see Samuelson, 1996b; S u t h e r l a n d , 1999; Harper, 2001; Corry, 2001). Finally, in the USA, the term of copyright has b e e n e x t e n d e d 11 times in the last 40 years, most recently by the Sonny B o n o Copyright Term Extension Act of

1998. 4 6 These

changes d e m o n s t r a t e the increasing reliance on newer forms of IP protection, exemplified by efforts to p r o m o t e increasingly restrictive IPR legislation to s u p p o r t the i n t r o d u c t i o n of m o r e sophisticated 45

In the USA, the collections of information antipiracy act, that was passed in 1998 and provided IPR protection to databases, shifts the constitutional balance in three ways: "First, the Constitution requires originality for protection, whereas the act would extend property rights to compilations that lack it. Second, the Constitution grants protection for only limited times. The act attempts to meet this requirement by limiting protection to 15 years after the investment of resources that qualifies a portion of a collection for protection. However, because the act protects a discrete portion of a database from the date of investment in that portion, continuously updated databases will be mixtures of protected and unprotected data. Thus the act gives effectively 'rolling' and perpetual protection to a collection, which is directly against the Constitution's principle of a limited period. If so, compilations lacking originality would arguably have stronger legal shields than patents or works of creative authorship. Finally, the act would shift the goal of copyright law from the promotion of science and creative authorship to the protection of investment" (Gardner and Rosenbaum, 1998, p.787). 46 Originally, copyright in the USA lasted for 14 years. In 1998, individual-owned copyrights were extended by 20 years, from life plus 50 years to life plus 70 years. Corporate-owned copyrights were extended by 20 years to 95 years, as were all copyrights for works produced before 1978 (Walker, 2000). See also Lavigne (1996) and Lutzker (1999). Furthermore, as Lessig (2000a) pointed out, "Since 1790, a lot has changed. Copyright is no longer restricted to 'maps, charts and books.' It reaches anything 'fixed in a tangible medium of expression'. It no longer regulates only publishers; it reaches anyone who makes a 'copy'. Nor is copyright limited to copying: A derivate use of the original work can also be subject to the original copyright. And Finally, no longer is the initial term relatively short.... Copyright has thus morphed from a short, relatively insignificant regulation of publishers, to a restriction that is effectively perpetual, and that regulates everyone with access to a computer or Xerox... machine." See also Lessig (2000b).

Monopoly

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t e c h n i c a l d e v i c e s f o r I P R p r o t e c t i o n . 4 7 A c c o r d i n g t o Boyle ( 2 0 0 0 b , pp. 2010-2011), T h e plan is fairly easy to work out. After claiming new, larger a n d l o n g e r intellectual property rights, the n e x t step is to engage in m u c h m o r e fine-grained regulation of how that intellectual property can be u s e d . O w n e r s of c o n t e n t will rely o n s h r i n k - w r a p c o n t r a c t s a n d technological restraints to strip users of the s t a n d a r d rights offered by intellectual property systems: the right of fair use, first sale a n d so forth. Software, music, e-texts, a n d movies will b e licensed r a t h e r t h a n sold to users. As a result, s o m e of t h e privileges p e o p l e take for g r a n t e d with a b o o k — the ability to l e n d it, resell it, criticize it, parody it a n d so o n — will b e explicitly waived by contract. Technological e n c r y p t i o n a n d w a t e r - m a r k i n g s c h e m e s will b e u s e d to tie digital objects to particular p e o p l e a n d c o m p u t e r s , so that t h e r e are physical as well as legal restraints o n the use of those objects. These schemes will p r e v e n t (or at least h a m p e r ) n o t only black m a r k e t "piracy" of intellectual property, b u t also "gray market" resale, n o n - m a r k e t gift, or loan transactions a n d competitive attempts at decompilation a n d reverse e n g i n e e r i n g . Despite, these a n d o t h e r growing concerns, institutional measures to s u p p o r t IPR regimes are being e x p a n d e d rapidly a n d

fortified

m o r e v i g o r o u s l y i n official c i r c l e s , r a t h e r t h a n b e i n g r e s t r a i n e d o r m o d e r a t e d . 4 8 I n d e e d , A o k i ( 1 9 9 8 b , p . 271) n o t e d t h a t T h e p a t t e r n in e x p a n d i n g intellectual property protection that has e m e r g e d has b e e n to 'whipsaw' domestic a n d international protections against each other. T h e US will first sign o n t o a multilateral 47

These may range from encryption to mu-chips (tiny, flexible microchips, recently invented by Hitachi, that can be embedded in material such as clothing labels, and used for anti-counterfeiting and tracking purposes). 48 It has been noted that, "The balance that copyright law has achieved between the interests of copyright owners and the interests of the public has [previously] evolved slowly and has been only periodically adjusted. Today, however, the pace and the magnitude of change threaten to skew this balance to the point of collapse. Some of these changes — licenses, access controls, certain provisions in the digital millennium copyright act (DMCA) — have the potential to drastically undermine the public right to access information, to comment on events, and even to share information with others" (Harper, 2001).

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treaty like the GATT, which provides for 'minimum standards' of intellectual property protection. Next, there are moves to similarly ratchet up domestic levels of protections, which in turn exerts pressure on other treaty nations to likewise increase protections. The end result is that minimum standards of protection become driven by a maximalist agenda.' As a consequence of this a n d other developments, there has been a significant shift in the ownership of a n d interest in IPRs, contrary to the original aims of American IPR laws (Patry, 1997; Travis, 2000). Even the mainstream news magazine, The Economist (2001a) n o t e d that, "Growing n u m b e r s of economists are u n e a r t h i n g evidence that America's patent regime is out of step with precisely those values it was designed to p r o m o t e . " Some observers n o longer perceive the situation in terms of right or wrong, or costs versus benefits, b u t in terms of politics a n d political economy. 4 9 Continuing or even accelerating appropriation of IPRs by the m o r e d e v e l o p e d c o u n t r i e s , s u c h as t h e USA, leads to t h e s p e c t r e of a situation in which even more knowledge, information, technology and other resources will be directed towards further e n h a n c e m e n t s of the i n c o m e s , living s t a n d a r d s , p r e o c c u p a t i o n s a n d d e s i r e s of t h e p o p u l a t i o n in the wealthy countries, at the e x p e n s e of the p o o r e r countries. While it is possible that the r e c e n t changes in the international IPR regime will bring some benefits to the population of the world's poorer countries, there is a greater likelihood that the new IPR r e g i m e will h e l p to p e r p e t u a t e a n d even a c c e l e r a t e t h e growing disparity of benefits between the rich a n d the p o o r countries of the world. Furthermore, in a market economy, those who have little or n o 'effective d e m a n d ' will n o t attract the resources to satisfy their needs, n o m a t t e r how u r g e n t or life-threatening their situation may b e . 5 0 49

For instance, Kahin (2001) noted that "The patent system has expanded with little public scrutiny pushed by the natural self-interest of those who labor within it.... its stewards have engineered the removal of its traditional limits to spread it seamlessly across the entire economy without analysis and without public debate." 50 Oxfam (2001a, p. 7) noted that only ten per cent of global R&D is directed towards illnesses that account for 90 per cent of the worldwide disease burden. See also Bulard (2000).

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In contrast, those who possess substantial effective d e m a n d , will attract even m o r e resources a n d attention to their desires, n o m a t t e r how excessive or wasteful those may be.

Backlash: Voice and Exit Strategies in Response to Extensions of the IPR Regime T h e situations e x a m i n e d above suggest that there are at least two forms of IPRVs. Type 1 form of IPRV, or IPRV(l), results from the exploitation of IPRs by the users of IP, without p r o p e r attribution a n d compensation to the owners of the associated IPRs. Type 2 form of IPRV, or IPRV(2), results from the exploitation of IPRs by the owners of IPRs against the actual a n d potential users of those IPRs, by withholding access to or authority for the use of the associated IP t h r o u g h the q u a n t u m of charges levied, the constraints imposed, a n d various o t h e r means by which benefits are denied. From this perspective, the prevalence of IPRV(l) in Asia a n d elsewhere may also represent, directly or indirectly, a response to the practice of IPRV(2). In this regard, following Hirschman (1970), we may identify at least three principal kinds of responses to IPRV(2): (a) Loyalty: obeisance a n d submission by governments a n d the population of the developing countries, (b) Voice: growing protests by people who are disgruntled over the massive power and reach of multi-national firms, the perceived adverse impacts o n economies, societies a n d the environment, a n d the process of globalization associated with the imposition of 'harmonized m i n i m u m standards' of IPRs through the W T O a n d TRIPs, a n d (c) Exit: disregard for the new IPR regime, resulting in (increased) I P R V ( l ) . T h e consequences that flow from loyalty are described by the conventional portrayal of the benefits of having an IPR regime. These proclaimed benefits are offset by the problems described above. These problems contribute to voice a n d exit responses to the recent significant extensions of IPRs a r o u n d the world. T h e application of voice in response to domestic a n d global extensions of the IPR regime may be observed in the myriad criticisms

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that have surfaced around the world. For example, in Asia, protests have arisen against the introduction of genetically engineered crops, and the expropriation of property rights to Asian food crops such as basmati rice and jasmine rice through patents granted to American companies such as RiceTec and others, and other acts of biopiracy.51 The AIDS crisis has been another source of criticism against the international IPR regime. "People Before Patents" has become a standard rallying cry against the enforcement of IPRs on essential medicines. In this context, there has been rising opprobrium towards pharmaceutical companies that tried to prevent the importation, production and use of generic drugs for the treatment of HIV/AIDS in Thailand, Brazil and South Africa.52 On a wider front, prominent protests and demonstrations have also occurred at the WTO ministerial meeting at Seattle on December 1999, and subsequently at other events and locations. 53 Oxfam and other researchers have also drawn attention to the problem of 'bio-piracy', that is, the appropriation through patents of genetic material, and uncompensated use of other organic materials 51

See Assisi foundation, et al, 1998; Indigenous peoples, 1999; SANFEC, 1999; GRAIN, 2001a and 2001b; PANAP, 2001. Aoki (1998a, p. 49) observed that, "The sad irony is that the intellectual property-rich nations of the developed world have pushed for swift enactment of TRIPs in order to avoid what they claim are disastrous and ruinous levels of piracy of their intellectual properties, whether computer programs, videos, music CDs, movies, or technology, by countries of the developing and least developed nations. However, the ideological content of these piracy claims becomes evident when considering that the fears seem to mask the amount of piracy occurring in the opposite direction — invaluable biological and cultural resources flowing out of the countries of the south as "raw materials" into the developed nations of the north where they are magically transformed in the laboratories of pharmaceutical and agricultural corporations into protected intellectual properties whose value is underwritten by provisions of multilateral agreements such as TRIPs." 52 In April 2001, following strong public pressure, foreign pharmaceutical companies agreed to reduce prices for patented AIDS medication sold in South Africa. 53 In this context, it has been argued that, "The use of the WTO to advance the interests of powerful companies will also further erode the credibility of global institutions at a time when effective multi-lateralism is desperately needed to address problems of poverty and inequality, and to underpin shared prosperity" (Oxfam, 2001a, pp. 4-5).

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f o u n d in t h e d e v e l o p i n g c o u n t r i e s . 5 4 W h e n losses claimed by pharmaceutical companies d u e to IPRVs in pharmaceuticals a n d agricultural chemicals are c o m p a r e d to developing countries losses on non-payment of royalties on traditional-seed varieties and products derived from medicinal plants, it has b e e n argued that the former owes significant genetic debts to the latter. Oxfam (2001c, p. 6) noted that "ifjust a two p e r cent royalty were charged o n genetic resources developed by local innovators in the south, it is estimated that the n o r t h would owe m o r e than US$5 billion in u n p a i d royalties for medicinal plants." In this regard, Darrell Posey, a researcher into the use of traditional resources by indigenous communities, warned that Local communities are being u n d e r m i n e d and their valuable knowledge, that has protected local biodiversity, is being lost as a result. Consequently, enhancement of local communities' rights and their control over land and resources is necessary. Existing intellectual property rights instruments do not do this. On the contrary, they facilitate and accelerate the destruction of local cultures. New intellectual property rights systems must be developed that recognize indigenous and local peoples' value systems. These value systems are usually collective and are based on trusteeship and stewardship, not ownership. Thus "property rights", per se, are inappropriate since things are not owned, but held for past and future generations. New mechanisms are necessary and these must be based on human rights and not economic interest (IDRC, 1997). In a similar vein, Jeffrey Sachs, d i r e c t o r of the C e n t r e for International Development at Harvard University, n o t e d that, In a world in which science is a rich-country prerogative while the poor continue to die, the niceties of intellectual property rights are likely to prove less compelling than social realities.... The world needs 54

"Claims to IP are concentrated among very few countries. Industrialised countries account for over 97 per cent of patents world-wide — and around half of royalty payments for patents are directed towards the USA.... It is estimated that around one-quarter of the compounds used in the manufacture of patented drugs are derived from plants in developing countries, many of which have been used for medicinal purposes for generations. Yet the royalty payments associated with these compounds accrue to Northern corporations" (Oxfam, 2001a).

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Hock-Beng Cheah to r e c o n s i d e r the q u e s t i o n of p r o p e r t y rights before p a t e n t rights allow rich-country multinationals in effect to own the genetic codes of the very foodstuffs o n which the world d e p e n d s , a n d even the hum a n g e n o m e itself.... T h e U n i t e d States prevailed u p o n the world to t o u g h e n p a t e n t codes a n d cut down o n intellectual piracy. But now transnational corporations a n d rich-country institutions are p a t e n t i n g everything from t h e h u m a n g e n o m e to rainforest biodiversity. T h e p o o r will b e r i p p e d off unless some sense a n d equity are i n t r o d u c e d into this runaway process. Moreover, the system of intellectual property rights must balance the n e e d to provide incentives for innovation against the n e e d of p o o r countries to get the results of innovation. T h e c u r r e n t struggle over AIDS medicines in South Africa is b u t an early warning shot in a m u c h larger struggle over access to the fruits of h u m a n knowledge. T h e issue of s e t t i n g g l o b a l r u l e s f o r t h e u s e s a n d d e v e l o p m e n t of n e w technologies — especially the controversial biotechnologies — will again r e q u i r e global co-operation, n o t t h e strong-arming of the few rich countries (Sachs, 1999). 55

55

Another trenchant critique is offered by Aoki (1998a, pp.47-48), who argued that, "The freedom that transnational corporations are claiming through intellectual property rights protection in the GATT agreement on trade related intellectual property rights is the freedom that European colonizers have claimed since 1492. Columbus set a precedent when he treated the license to conquer non-European peoples as a natural right of European men. The land titles issued by the pope through European kings and queens were the first patents.... Eurocentric notions of property and piracy are the bases on which the IPR laws of the GATT and [WTO] have been framed. When Europeans first colonized the non-European world, they felt it was their duty to 'discover and conquer,' to 'subdue, occupy, and possess,' ... everything, every society, every culture. The colonies have now been extended to the interior spaces, the "genetic codes" of life-forms from microbes and plants to animals, including humans.... The assumption of empty lands, terra nullius, is now being expanded to 'empty life,' seeds and medicinal plants ... [and this] same logic is being used to appropriate biodiversity from the original owners and innovators by defining their seeds, medicinal plants, and medical knowledge as nature, as nonscience, and treating tools of genetic engineering as the yardstick of 'improvement.' ... At the heart of the GATT treaty and its patent laws is the treatment of biopiracy as a natural right of Western corporations, necessary for the 'development' of Third World communities".

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Strong critiques of the o r t h o d o x perspective of IPRs are also stemming from various quarters within the developed countries, a n d from the very heartlands of free enterprise America, proclaiming that the benefits being captured by the new IPR laws are too extensive, too exclusive, too prolonged, a n d unjustified (see Patry, 1997; Aoki, 1998b). Growing domestic criticisms of the m a n n e r of the evolution of the IPR system within the US in particular, have resulted in various forms of exit strategies. These can be illustrated by examining developments in the field of information communication technology (ICT). There has been a growing movement promoting the development a n d use of o p e n source software, exemplified by Linux a n d others, in preference to proprietary software, such as Windows 2000. T h e o p e n source m o v e m e n t is a g r o u p of volunteer p r o g r a m m e r s who develop c o m p u t e r operating systems, p r o g r a m m i n g languages, a n d o t h e r software. They work together in teams that c o m m u n i c a t e via the Internet. Their goal is to develop useful software that is available for free a n d that users can change at will. To enable users to change a n d improve the software, they also distribute its source code (see Young, 1999; van Wegberg & Berends, 2000; Weber, 2000; Tuomi, 2001). Potter (2000) c o n t e n d e d that economically, o p e n source is a m o r e efficient way to allocate the benefits of copyright to society. T h e shift from proprietary to o p e n source software is facilitated significantly by a shift from copyright to a form of license known as copyleft (Gomulkiewicz, 1999; Newmarch, 2000). 5 6 A n o t h e r significant development has b e e n the growth of peer-top e e r file exchanges. T h e legal actions b r o u g h t against Napster

;6

' Copyleft license software, or open source software, has different restrictions compared to copyright license software, or proprietary software. The key open source restrictions are: 1) the software must be redistributed freely; 2) the distribution must include the source code; 3) derived works are allowed; and 4) the author's source code must retain its integrity. Thus the license restrictions on open source software are intended to ensure that it remains free (Potter, 2000). One example of this is the GNU General Public License.

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a n d MP3.com have n o t stopped the widespread sharing of music files via the Internet. O n the contrary, new channels have e m e r g e d to replace those that have b e e n handcuffed. As o n e r e p o r t noted, "even as the record companies clamp down o n Napster and MP3.com in the courts, former Napster users are drifting to other file-swapping services: Aimster, Audiogalaxy, KaZaa or Gnutella a n d its offspring, such as BearShare a n d LimeWire. T h e n u m b e r of users logged o n daily to Gnutella has q u a d r u p l e d since March. T h e fastest-growing Napster clone is Audiogalaxy, which is picking u p over l m users a week." (TheEconomist, 2001b. See also Lewis, 2001, and von Lohmann, 2001). O n the horizon, there is a prospect of even greater proliferation of peer-to-peer exchanges (see Gibbs, 2000). In the realm of publishing, there has b e e n a significant a n d growing protest by academics a n d academic institutions against the skyrocketing prices c o m b i n e d with m o r e o n e r o u s online access conditions being levied by some major publishers, such as Reed Elsevier a n d others. These have led to initiatives such as the Scholarly Publishing a n d Academic Resources Coalition (SPARC), a n d the Public Library of Science (Rambler, 1999; Buckholtz, 2001, Vaknin, 2001a). 5 7 Perhaps the most worrying prospect for the old o r d e r is associated with the e m e r g i n g tendencies in a digital e c o n o m y leading towards the provision of goods a n d services 'anywhere', 'anytime', of 'any kind', with ' n o matter', at ' n o charge', a n d widespread capabilities to 'do-it-yourself (Cheah & Cheah, 2002). For example, "The threat a n d promise of networked digital technology is that every individual with access to a c o m p u t e r will be able to perform the 21st century equivalent of printing, re-printing, publishing a n d vending. If the vast majority of t h e m d o n o t comply with the copyright law, t h e n the copyright law is in d a n g e r of b e c o m i n g irrelevant" (Litman, 1997) . 58

57

See the open letter signed by thousands of academics in support of freer access to scientific and medical literature at http://www.publiclibraryofscience.org/ 58 Barlow (1994) remarked on the fact that, "so many are trying to uphold by force what can no longer be upheld by popular consent.... The laws regarding unlicensed

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Such developments will clash directly with opposing efforts to extend a n d enforce IPRs. Indeed, efforts to extend a n d e n t r e n c h IPRs further, in the face of technological change that make it easier to share material widely at little or n o personal cost, may lead to an even wider private flouting of official rules relating to IPR protection. As n o t e d above, in relation to the IPR situation in China, it is by n o means clear to many individuals (even in the developed countries) that acts of IPRV(l) are particularly reprehensible. To the extent that IPRV(l) occurs m o r e widely, at the same time as they are m a d e a punishable offense, a situation could emerge similar to the 'war o n drugs', where there is a serious disjunction between private behavior a n d official standards of morality, a n d where there is little prospect of a quick a n d conclusive resolution of the differences (see Wisotsky, 1992; Carney, et al., 2000). This situation may lead to (further) u n d e r m i n i n g of respect for the law, rather than to the alteration of private behavior. Indeed, Far from enhancing or securing the position of copyright holders, these moves by the legislatures may have only further soured an already cynical consumer population. What the MP3.com and Napster phenomena have proven is that the average consumer regards the legislative monopoly that is copyright largely with contempt .... they want to be provided with a fair rate for an "all you can eat" service rather than to be presented with differential pricing for separate

reproduction of commercial software are clear and stern ... and rarely observed. Software piracy laws are so practically unenforceable and breaking them has become so socially acceptable that only a thin minority appears compelled, either by fear or conscience, to obey them." Similarly, Scott (2001) offered the observation that "By emphasising a rhetoric of rights copyright holders are not serving their best interests in the long term.... Property survives and prospers as a regulatory system because those who do not respect property are a miniscule minority. If everyone — or even only 10% of the population — woke up tomorrow morning and decided to disregard those rights, there is nothing anyone could do to stop them. No amount of enforcement action would be to any avail and, in the (not so) long term, all of society's participants would suffer."

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options with premium rates being tacked on top. The moves by legislatures around the world have not made the acts of infringers any more illegal, although they have created a situation where the same facts may give rise to multiple infringe-ments greatly extending the protection provided to the information industry. Rather, they have mainly served to compound the cynicism that consumers already hold for the copyright law (Scott, 2001). To the extent that a 'culture of disobedience' proliferates in the developed countries, it would reinforce the resistance a m o n g individuals in developing Asian countries to alter c u r r e n t practices a n d personal behavior in relation to respect for IPRs, despite official efforts to promote a n d to enforce new IPR legislation. Indeed, a r o u n d t h e world, this may evolve i n t o a n o t h e r e x a m p l e w h e r e it is increasingly perceived that 'the law is an ass'. T h e consequent spread of covert acts of subversion a n d obvert acts of rebellion against various forms of IPRs may ultimately u n d e r m i n e the interests of those organizations that choose to enforce their proclaimed property rights, as well as u n d e r m i n e the legitimacy of the legal systems a n d the authorities associated with them. It is significant that, in reaction to the strong d o m i n a n c e of b r a n d e d goods a n d services, linked to heavily protected trademarks, expensive marketing strategies, extensive m e d i a advertising, a n d their associated public relations spin a n d hype, there has e m e r g e d recently a 'No Logo' counter-movement that c h a m p i o n s nonb r a n d e d products (Klein, 1999). This movement, with affinities to pro-environment a n d anti-globalisation groups, is a p a r t of a growing community that sees big corporations as exploitative a n d big g o v e r n m e n t as colluding in that process. Contrary to conventional claims that the IPR system encourages effort a n d rewards innovation, a growing n u m b e r of people are forming the view that it is in fact a conservative, regressive a n d increasingly inequitable system b e i n g p r o m o t e d by big business, s u p p o r t e d by big government, to make big profits o n a global scale. These concerns are e m e r g i n g with o t h e r growing concerns a b o u t the

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n e g a t i v e effects of c l i m a t e c h a n g e , 5 9 f r e e t r a d e , 6 0 a n d tion.

61

157 globaliza-

A c c o r d i n g to Okediji (1999, p p . 1 3 7 - 1 3 8 ) ,

Paradoxically, globalization has created crosscurrents between the traditional subjects of trade negotiations (tariffs a n d quotas) a n d a host of intensely contested social concerns such as environmental safety, child labor, health issues, a n d h u m a n rights. These issues have increasingly b e c o m e intertwined with multilateral trade talks, a n d as such, have b e c o m e a p a r t of domestic political agendas of specific countries, including the U n i t e d States. These developments suggest that the regulation of free trade u n d e r the classic liberal m o d e l will b e subject to greater pressure as globalization makes isolated responses to specific concerns increasingly difficult; selecting o n e p r o b l e m for g o v e r n m e n t intervention will directly implicate others. T h e interconnectedness of these issues is certain to generate conflict.

59

See, among others, Simms (2001), IPCC (2001) and Sayle (2001). Sachs (1999) observed that, "The situation of much of the tropical world is, in fact, deteriorating, not only because of increased population but also because of long-term trends in climate. As the rich countries fill the atmosphere with increasing concentrations of carbon, it looks ever more likely that the poor tropical countries will bear much of the resulting burden." Indeed, Sachs further argued that, "The United States feels aggrieved that poor countries are not signing the convention on climatic change. The truth is that these poor tropical countries should be calling for outright compensation from America and other rich countries for the climatic damages that are being imposed on them." 60 See, among others, Finger (2000) and Denny (2001). 61

See Smith and Smythe (2001). An important establishment representative, Guy Verhofstadt, the Prime Minister of Belgium and President of the European Union, has recently proclaimed the need for 'ethical globalisation', and conceded that "in this respect [the anti-globalisation protesters] are absolutely right. Even when we are driven by the very best intentions, it is only natural for us to be more concerned with the interests of a multinational oil company or of the European sugar beet farmers than with the fate of the Ogoni people in the Niger Delta or the meagre incomes of the workers on sugar cane plantations in Costa Rica" (Verhofstadt, 2001. See also Saul, 2000; Sen, 2000; Weaver, 2000).

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In this context, the US Administration has been a focus of the growing opprobrium. 62 Indeed, US global power and domination enabled it to pursue unilateralist domestic and global policies based on its self-defined interests. 63 The corollary was a disregard for the different interests of others, especially those in the developing world. Johnson (2000) has provided a prescient analysis of the 'blowback', or perverse consequences, flowing from such disregard.64 Similarly, it may be argued that efforts by corporate interests in the USA and other developed countries to impose IPRs on weaker countries and populations, in ways that could lead to significant levels of deprivation or harm, is also likely to cause a range of perverse effects in the future. 62

Among other things, it refused to pay its dues to the United Nations since the early 1990s because it disagreed with some decisions made at the UN; and it refused to support the establishment of an international criminal court because it refused to countenance that any of its nationals could be subject to a higher authority. In March 2001, President George W. Bush rejected US ratification of the UN framework convention on climate change embodied in the Kyoto Protocol because it was perceived to be against US corporate and national interests. He argued that, "I will not accept a plan that will harm our economy and hurt American workers ... first things first are the people who live in America; that's my priority" (Sayle, 2001). 63 See Smith (1999). However, following the terrible attacks on the World Trade Center on 11 September 2001, America sought global support, as President George W. Bush called for a 'crusade' to be launched in a 'war against terrorism'. On 24 September 2001, the US house of representatives voted to pay part of the financial arrears to the United Nations, "so that the Bush administration could remove an irritant in its relations with other U.N. member states as it seeks to build an international coalition to combat terrorism." http://www.unausa.org/policy/ NewsActionAlerts/info/dc092501.asp. 64 "'Blowback' is shorthand for saying that a nation reaps what it sows, even if it does not fully know or understand what it has sown" (Johnson, 2000, p.223). For example, "On the economic front, the arrogance, contempt, and triumphalism with which the United States handled the East Asian financial crisis guarantees blowback for decades to come. Capitals like Jakarta and Seoul smolder with the sort of resentment that the Germans had in the 1920s, when inflation and the policies of Britain and France destabilized the Weimar regime" (Johnson, 2000, p. 221). See also, Gowan (1999), Hitchens (2001), Tabb (2001), Burek (2001), Ford (2001), and Hoffmann (2001).

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Conclusion Violations of intellectual property rights are undoubtedly a very serious problem in at least two respects. O n the o n e h a n d , there are the substantial revenues a n d benefits forgone by owners of IPRs. These may range from individual songwriters, authors a n d inventors, to multinational enterprises in the entertainment, publishing, pharmaceutical, information technology, a n d a host of o t h e r industries, that may have invested substantially in R&D a n d o t h e r related activities to create IPRs. These are problems resulting from I P R V ( l ) . Against this type of violations, the owners of IPRs have recourse to a variety of countermeasures. These include legal remedies, including significant recent extensions of the legal framework t h r o u g h the TRIPs a n d the DMCA, as well as a variety of technical devices a n d entrepreneurial strategies. However, a second set of major problems arises from IPRV(2), when overall public (global) welfare is unduly limited or d a m a g e d by the monopolistic constraints of IPRs. In this respect, it has b e e n c o n t e n d e d that "Industrialized countries a n d their powerful corporations have secured imbalanced W T O agreements a n d a disproportionate share of the benefits of trade, at the expense of developing countries a n d people living in poverty" (Oxfam, 2001c, p . 3). W h e n the majority may be too impoverished to pay the prevailing price for accessing privately held IPRs; or too inadequately informed a n d too ill-prepared to challenge the appropriation of IPRs by agents who capture for private benefit resources that could, in the form of c o m m o n properly rights (or c o m m o n pool resources), benefit a substantially greater n u m b e r of people, overall public welfare is adversely impacted. Specifically, it has b e e n n o t e d that, Countries at the margins experienced the social and economic costs associated with intellectual property rights, but none of the perceived systemic benefits — in particular, the stimulation of local inventiveness. The international system did not model the public welfare provisions that were an integral part of the utilitarian platter on which intellectual property protection was served to developing countries. Ultimately, it became clear that national economic prosperity could

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not be predicated solely or even largely on the acquisition of technology through the promise of intellectual property rights (Okediji, 1999, p. 150). In this context, the violations are perpetrated by those who deprive v u l n e r a b l e p e o p l e of a f f o r d a b l e m e d i c a l t r e a t m e n t ( s u c h as drugs for HIV/AIDS treatment); those who seek to appropriate resources (for instance, t h r o u g h patents on genetic material from plants a n d o t h e r matter) that were previously in the public domain; a n d those who seek to impose the imperatives of late twentieth century forms of private ownership o n people who have very different ownership practices, with very damaging consequences to the latter. From this perspective, IPRV(l) may represent a 'revolt of the p o o r ' , as well as other groups opposed to IPR extensions (Vaknin, 2001b). 6 5 F u r t h e r m o r e , as Barlow (2000) noted, "No law can be successfully imposed o n a h u g e population that does n o t morally support it a n d possesses easy means for its invisible evasion." 66 These reactions against monopolistic practices represented by IPRV(2) stem n o t only from the populations in developing countries, b u t also from within the h e a r t l a n d s of C a p i t a l i s m , w h e r e t h e w o r l d ' s m o s t p o w e r f u l corporations locate their headquarters. T h e o u t c o m e of the battles over these monopoly rights and wrongs will have major consequences. T h u s , even in t h e s o m e w h a t a r c a n e a n d esoteric r e a l m of IPR, there are serious developments that have the potential to

65

Specially, it has been argued that "what Microsoft fails to understand is that the problem lies with its pricing policy — not with the pirates. When faced with a global marketplace, a company can adopt one of two policies: either to adjust the price of its products to a world average of purchasing power — or to use discretionary pricing.... Lower prices will be more than compensated for by a much higher sales volume. There is no other way to explain the pirate industries: evidently at the right price a lot of people are willing to buy these products. High prices are an implicit trade-off favouring small, elite, select, rich world clientele. This raises a moral issue: are the children of Macedonia less worthy of education and access to the latest in human knowledge and creation?" (Vaknin, 2001b). 66 See also, "A declaration of the independence of cyberspace," offered by John Barlow on 8 February 1996, at http://www.eff.org/Misc/Publications/ John_Perry_Barlow/barlow„0296.declaration

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arouse grave concerns a n d resentments in Asia, in the USA a n d elsewhere. Ultimately, the consequences of IPRV(l) are the consequences of theft, a n d they may a m o u n t in total to very large sums of money. But the consequences of IPRV(2) may pose serious threats to public health (from lack of affordable medicine a n d health t r e a t m e n t ) , food security a n d livelihood (from lack of access to affordable seed stock), local ownership of local resources (from biopiracy), access to information, opportunities for choice, a n d i m p o r t a n t h u m a n values. These costs are immeasurable, a n d may have m u c h b r o a d e r a n d d e e p e r ramifications a n d consequences in Asia a n d beyond.

Appendix A Asian countries u n d e r Special 301 scrutiny in 2001 by the Office of the US Trade Representative a n d the reasons cited for USTR concerns

Section 306 Monitoring China Widespread trademark counterfeiting a n d large-scale production of fake products. Widespread unauthorized p r o d u c t i o n a n d sale of copyrighted products. Increased production of pirated optical media products by licensed plants. U n a b a t e d piracy of US books. Varied effectiveness of enforcement efforts between regions. Lack of transparency a n d p o o r coordination a m o n g responsible police a n d government agencies Criminal actions are rarely filed, legal threshold for prosecutions are too high, a n d administrative penalties are too low to deter further piracy.

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Priority Watch List India P a t e n t system a n d p r o t e c t i o n of exclusive test data are n o t compliant with TRIPs obligations. Patent protection is difficult to obtain because of a large backlog of applications, severe shortage of p a t e n t examiners, a n d overgenerous opposition p r o c e d u r e s that often delay patent issuance until the p a t e n t has expired. P e n d i n g legislation to rectify these TRIPs deficiencies may fall short. Poor enforcement of copyright legislation allows r a m p a n t piracy of motion pictures, music, software, books, videos, video games, a n d VCDs.

Indonesia Has n o t yet passed TRIPs-consistent copyright, trademark a n d p a t e n t laws. Piracy levels for copyright a n d trademark goods are a m o n g the highest in the world, a n d are a growing problem. Alarming expansion of optical media p r o d u c t i o n capacity signals that Indonesia is b e c o m i n g a refuge for audio a n d video pirates from o t h e r countries in the region. Judicial system remains ineffective for enforcing IPRs.

Korea Widespread piracy of US trade a n d educational books. Weaknesses remain in IP legislation, particularly in relation to copyrights. Recent a m e n d m e n t s fail to provide explicit protection for temporary copies, a n d it is unclear w h e t h e r there is legal protection against t h e unfair commercial use of confidential test data.

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Newly introduced IPR protection a n d enforcement measures have n o t yet demonstrated their effectiveness. Questions a b o u t whether the enforcement measures are transparent, non-discriminatory a n d will b e sustained.

Malaysia T h e government has only just b e g u n to take steps to enforce new IPR protection laws. While n u m e r o u s raids a n d inspections have b e e n conducted over the past two years, virtually n o criminal prosecutions have yet b e e n completed.

The Philippines Copyright p r o t e c t i o n is weak, a n d the country has b e c o m e a d e s t i n a t i o n for p i r a t e p r o d u c e r s f o r c e d o u t f r o m o t h e r Asian countries. Production lines for CDs a n d o t h e r optical m e d i a have d o u b l e d during the past year, a n d the country has the potential to become a center of pirate optical m e d i a p r o d u c t i o n in Asia. Cable piracy is w i d e s p r e a d , a n d n e w a n d r e c e n t films a r e retransmitted without authorization. Piracy of US textbooks remains rampant. N o provision for civil ex parte searches. E n f o r c e m e n t resources are i n a d e q u a t e , customs efforts are sporadic, a n d the judicial process is slow a n d virtually ineffective.

Taiwan C o n t e n d e d to be o n e of the largest p r o d u c e r s of pirated optical m e d i a products in the world. Declined to enact strong optical m e d i a licensing legislation, a n d it has failed to shut down known pirate operations.

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C u r r e n t p a t e n t law provides a 20-year term of protection from the date of application only to patents applied for after 23 January 1994. Copyright law needs strengthening in areas including protection for temporary copies. Significant trademark counterfeiting, particularly of auto spare parts. Without adequate legislation and sustained enforcement, it remains a haven for pirates.

Watch List Macau* Failure to convict a n d sentence manufacturers of infringing IP products. Weak penally imposed after conviction for the offense.

Pakistan Sharp growth in optical media piracy, a n d p r o d u c t i o n capacity. Pirated goods flood the domestic market, a n d are e x p o r t e d t h r o u g h o u t the region. Book piracy occurs at high levels. Courts refuse to issue ex parte search orders, a n d thus h a m p e r enforcement efforts. Delays in c o u r t p r o c e e d i n g s a n d weak penalties r e d u c e the effectiveness of IPR protection measures.

Thailand Copyright piracy levels c o n t i n u e to b e high, with increases in the illicit use of business software a n d the rate of optical media piracy. Remaining TRIPs related legislation n o t yet passed by parliament.

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Vietnam Very h i g h p i r a c y r a t e s c o n t i n u e f o r all f o r m s o f IP, i n p a r t i c u l a r copyright. Effective i m p l e m e n t a t i o n a n d e n f o r c e m e n t o f n e w laws is n e e d e d t o r e d u c e p e r v a s i v e piracy. Source: USTR (2001). *Special Administrative Region of China.

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Corruption in Mainland China Today: Data and Law in a Dubious Battle

Francois-Yves Damon

Introduction Corruption looms as o n e of the biggest political a n d economic challenges that face China in the twenty-first century. Conservatively estimated at 1 3 - 1 6 % of China's GDP, corruption is a h u g e economic loss a n d is social pollution. It contributes to problems such as environmental degradation, social a n d political instability, a n d the decreased credibility of government officials. According to surveys c o n d u c t e d in 1998 a n d 1999, the Chinese people viewed corruption as the n u m b e r o n e factor contributing toward social instability. In 2000, fearful of the imminent pains of economic reform, Chinese p e o p l e n a m e d only u n e m p l o y m e n t a n d the fear of b e i n g laid off ahead of corruption as the primary source of social instability (Hu, 2001). From 1980 onwards the people's republic of China began its second transition. T h e first transition was in 1949, which was a violent break from t h e so-called O l d C h i n a to a new o n e , t h e 'egalitarian c o m m u n i s m ' , controlled by Mao. Two years later the Three anti Campaign was l a u n c h e d directly aimed at corruption. By the time of the second transition people were exhausted after so many years of dictatorship, exhausted too by the breaking from the first transition

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a n d the move to a market economy. This process, a n d its completion, is the PRC's aim for admission to the W T O . But, as J a m e s Kynge wrote, in the Financial Times, November th 13 2000: "WTO: Overseas investors are excited about the prospect of China opening up, but, consultants say, private enterprises can come with their own shortcomings, such as corruption". Therefore, the fight against corruption becomes self-evident as a c o m m o n feature of the two transitions. But are the foes the same for the two fights? T h e three anti campaign of 1951-52, dealing with the 'three evils', l a u n c h e d the first struggle: corruption, waste a n d bureaucracy. Apparently, many cadres viewed corruption and waste as natural and acceptable. They reportedly said: "Corruption and degeneration are minor things and have no bearing on the cause of revolution; it does not matter if one squeezes (graft) as long as it is not discovered; waste is unavoidable, and so forth" (Teiwes, 1993). T h e fight against corruption was n o t taken seriously as the revolution's target, which was to overthrow the shadow of the Old China — this was seen as the real corrupter. It was e n o u g h to wipe o u t every c o m p o n e n t of the old feudal class, the bourgeoisie, capitalism, the bad cadres, a n d so create the virtuous new "true" communist era, eradicating corruption forever. Thus we may say the first fight was between c o m m u n i s m a n d the bourgeoisie, b u t the second fight was purely internal, between good a n d b a d cadres. But how should o n e m a n a g e this new fight if c o r r u p t i o n comes from the links between bad cadres a n d the nouveau riche? T h e second fight against c o r r u p t i o n is n o t so black a n d white, since capitalism a n d the bourgeoisie are n o m o r e the single foe, n o m o r e an evil c o m p o n e n t to eradicate. T h e first fight was an ideological o n e , the s e c o n d is m o r e practical, although it retains moral features even in the reports of cases, police investigations a n d trial reports, in reviews such as Renmin Jingcha (People's Police), the Shanghai public security bureau monthly

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review, Jingtan (Inquiries), the Anhui province public security bureau monthly review a n d Fazhiyu Xinwen (Laws a n d News), or the ministry of j u s t i c e m o n t h l y review. T h e s e reviews have b e e n r e c e n t l y established, as there were n o such items d u r i n g the Maoist era: newspapers likewise did n o t r e p o r t o n crime, as, Socialism was n o t supposed to produce it (Kinkley, 2000). In police a n d Justice monthly reviews a n d reports o n corruption cases, we still find the old politicomoralist reportage, as in the recent famous case, that of C h e n Kejie, f o r m e r vice-chairman of n a t i o n a l p e o p l e ' s c o n g r e s s s t a n d i n g committee 1 who was sentenced to death a n d executed September 2000, for accepting bribes worth 31 million Renminbi. C h e n h a d betrayed the confidence of the masses the r e p o r t said, shifting from the cadre's duty to serve the people, to his self-interests 2 . T h e r e is more focus on psychological features, and even sociological approach for o t h e r criminal reports in the police reviews. Take thefts a n d murder-ones for example. In these cases, o n e can still see some features of the Maoist era, such as class background, a n d so on, which is reflecting the p o o r against the rich drama, as opposed to the m e n t i o n i n g of a r m e d gangs, which are the second Chinese evil just b e h i n d corruption: "Mafia-style gangs, who have plotted many of the armed robberies and kidnappings, are running wild in some of China's provinces... The Public Security Bureau of Central China's Hubei Province has made a decision that its men will be allowed to shoot dead armed gangs who are robbing banks". 3

^ o r n 1933, graduated from department of communications, North Jiatong University, chairman of Guangxi Zhuang autonomous regional people's government 1990, deputy secretary of CPC Guangxi Zhuang autonomous regional committee, 1989, Member of CPC 14th Central Committee, 1992, deputy to 7th and 8th NPC, 1988 and 1993, Who's Who in China Current Leaders, Foreign Languages Press, Beijing 1994, p. 76. 2 Weihe shouhui ru tan nang qu wu? (Why is corruption so easy?), Jingtan (Inquiries), September 2000, p. 34-35. ^China Daily, January 12, 2000.

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T h e second fight against corruption is even easier to u n d e r s t a n d for us than the first, having at our disposal two keys of such an investigation — the process of creating laws, a n d their statistics. However, the p r o b l e m w h e n writing about corruption is that, apart from police a n d legal reports, we only have statistics to work from, a n d little in the way of objective analysis. Let us take the example of a c u r r e n t Chinese social feature, female infanticide — how might we measure its full extent? T h e 1992 Law o n the Protection of Juveniles forbids infanticide, b u t we see reported: "The use of ultrasound tests to determine gender also results in decisions to terminate pregnancies of female foetuses. In July, the Liaoshen Evening News reported that in a township of Liaoyang County, the male to female sex ratio was 306/100 for second children born between 1992 and 1999. Part of the statistical gap may be attributable to female infanticide, sex-selective termination of pregnancies, and the abandoning or neglect of girls", (Damon, 2000). Suspicions a b o u t female infanticide in China are confirmed by the relevant statistics. According to the China Statistical Yearbook 2000 4 , the 1999 population is 1,259 billion, with 641 million males (50.98%) a n d 617 million females (49.02%) — this is almost the opposite of the developed countries' ratio that shows a ration of a b o u t 52% female to 4 8 % male as the n o r m . T h e national Chinese ratio of male to female births in 1994 was 117 to 100 while the worldwide statistical n o r m was 106 to 100. T h e n , for surviving childr e n in 1999, the percentage changes from 50.55% male to 49.45% female for Shanghai (103/100 ratio), to 54.57% male to 45.43% female in H a i n a n Island (121/100 ratio). This lack of girls boosts a n o t h e r corrupt practice — the Chinese trade in k i d n a p p e d women. In these cases of female infanticide, in c o m p u t i n g the n u m b e r of living males a n d females, a certain n u m b e r of children have probably n o t b e e n included, however, o n e can get better confirmed references u p o n this subject than when searching for corruption. So, how are we to achieve a reliable account of corruption?

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C o r r u p t people have to be identified, first, by falling u n d e r suspicion, second, by being submitted to enquiries, and, only if there is sufficient evidence, by prosecution. T h e data for corruption comes from the reports on prosecution. If corruption [in mainland China] is truly efficient, their statistics can only give a partial picture of the reality. Yet we may surmise that the new legal code gives some indication of the importance that the Chinese government confers o n fighting corruption.

Sources of Data Information o n corruption in m a i n l a n d China today has to be obtained from: 1. Chinese official data — for instance, the Procuratorial yearbook of China a n d the Penal yearbook of China. 2. trial cases reports from Chinese legal reviews, such as Fazhi yu Xinwen (Law a n d News). 3. from Chinese newspapers — b u t these can r e p o r t o n corruption only with government a n d Party approval, for example, Renmin Ribao (People's Daily), the official daily newspaper of the People's communist Party does n o t publish any reports o n corruption. 5 We can get further information from the English language 'Peking China Daily'. 4. there are other sources such as inquiries, nongovernmental, international a n d governmental publications — for example, the US d e p a r t m e n t of state r e p o r t o n ' H u m a n rights practice in China'. 5. there are the overseas newspapers, but uiese only refer to especially 'interesting'judicial cases. Using all sources we find that corruption, in all forms, has soared in Mainland China over the last twenty years. Corruption has increased along with crime in general.

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Early data is missing, t h o u g h collection began again in 1979 with the r e o p e n i n g of the Statistic Bureau a n d the Ministry of Justice, both of which h a d b e e n shut down in 1959. It is evident that the n u m b e r of criminal trial cases has soared since 1980, the year of the first r e c o r d e d hold u p in the history of the People's Republic (remember, the People' Republic became an entity only in O c t o b e r 1949). T h e three peak years of criminal cases were in 1983, 1996, a n d 1999: however, the reasons for these increases are n o t so obvious. T h e lack of statistics before 1978 prevents any comparison with the Maoist period, a n d Courts have only h a n d l e d cases since their re-establishment (note: from 1954 to 1979, each Procuratorial organ came directly u n d e r the leadership of the C o m m u n i s t Party at the same level). In 1957 the Security Administration P u n i s h m e n t Act 6 was edited: creating SAPA, which was a shadow criminal law, giving the power of justice to public security organs for the control a n d the use of custody, investigation, a n d p u n i s h m e n t , from fines to periods of re-education t h r o u g h labor, within some 34 m i n o r cases considered harmful to public security. T h e Standing Committee of the National People's Congress passed a revised version of SAPA in September 1986, so the trial case statistics are incomplete (Tanner, 1985). We can only note the soaring trend.

Table 2: Homicides and assaults cases registered in public security organs

1982 Total 748,476 Homicides 9,234 Assaults Homicides rate for 100,000 inhabitants 0.9

6

1998/1997 +22% +6.4% +17%

1997

1998

1999

1,613,629 1,986,068 2,249,319 26,070 27,670 27,426 69,071 80,862 97,772

2.10

2.21

1999/1998 +13% -0.9% +13%

2.17

, 22 October, Er shi shiji Zhongguo Dashi quanshu, (Encyclopedia of Twentieth Century China), Peking Chubanshe, 1993, p. 473.

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Is it the same for homicides a n d assault cases, which are n o t SAPA cases? In the three years (1997-1999) what is most noticeable is the h o m i c i d e rate p e r 100,000 inhabitants is m o r e t h a n twice the E u r o p e a n Countries rates, equaling the British statistic of the 1860's — which was even greater t h a n their notorious time of Jack the Ripper in the 1880's. 1983 was said to be the worst year in China, being the year of the "decision regarding striking h a r d blows against criminal activities" issued by the central committee. T h e main targets of that campaign were assaults, homicides, rapes, traffickers in w o m e n a n d children, etc. But n o economic offences were cited. Yet, with 9,234 homicides cases a n d a 0.9 rate, was the previous year of 1982 such a bad o n e , c o m p a r e d for instance with the 27,426 cases a n d a 2.17 rate in 1999? From 1982 to 1999 homicides increased by 197%. Although we can enumerate homicides nationally, the distribution of corruption cases by provinces shows differences allowing us to establish two categories: 1. Its extent a m o n g the whole population, is distinguishable by the n u m b e r of cases per million of inhabitants. 2. Its 'efficiency' is e n u m e r a t e d by the a m o u n t of misappropriated funds. According to column 8 of Table 3, five of the p o o r e r provinces are a m o n g the least c o r r u p t e d according to the rate of cases per m i l l i o n of i n h a b i t a n t s . T h e five m o s t c o r r u p t p r o v i n c e s are G u a n g d o n g , Shanghai, Hubei, Peking a n d Hainan. G u a n g d o n g , with Shanghai a n d Peking a m o n g the five richest provinces of China r a n k e d by GDP p e r inhabitant. T h e most corrupt province, far ahead of the others, is Guangdong: 19,330 cases against 268 p e r million of inhabitant. This is without any d o u b t linked firstly, to the proximity of H o n g Kong a n d the Special Economic Zone of Shenzhen, a n d the inevitable high level of smuggling across these boundaries. Secondly, it is linked with the relaxed control exerted by provincial authorities, which is m a d e easier by the distance from the central government in

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Table 3: C o r r u p t i o n by certain provinces 7

1 Province

Ningxia Guangxi Gansu Hebei

Jiangxi Yunnan Hunan Anhui

Zhejiang Inner Mongolia Jinagsu Henan Sichuan Qinghai Shaanxi Fujian

Jilin Liaoning Xinjiang Guizhou Shanxi Shandong Tianjin HLj Hainan Peking Hubei Shanghai Guangdong

2 GDP (millions)

24,000

3 Misappropriated funds (millions RMB)

4 Rate of MFto GDP

5 Cases

20

0.08

66 1,299 871 2,380

195,00 93,000 456,000

20 36 N

196,000 185,000

143 170 409 120 460

332,000 290,000 536,000 126,000 769,000 457,000 371,000 23,000 148,000 355,000 166.000 417,000 116,000 91,000 150,000 766,000 145,000 289,000 47,000 217,000 385,000 403,000 846,000

N 580 255 436 10 95 127 N 290 110 51 102 430 55 N 202 290 310 310 440

0.10 0.03 N 0.07 0.09

6 7 Official Population (millions)

N

5

442 143 167

47 25 66

1,671 1,763 2,818 2,666 1,960

266

43

232 617 261 391

42 65

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1,039 3,323 4,324 4,453 263

355 337

23

0.42 0.13 0.08 0.07 0.05

812 1,702 8,901 2,224 19,330

0.12 0.04 0.08

2,132 1,989 1,596 2,674 1,110 2,612 2,396 7,035 713 3,807

152 1230 76 N 640 282 423 146 604 576 315 35 771 61 71 353 123 600

8 9 Cases per GDP/ million inhabitants inhabitants

62 44

72 93 85 5 36 33 26 41 17 37

13 27 34

4,800 4,148 3,720

36 38 41

6,909 4,558 4,404

43 43 44

5,107 4,677 12,181

45 46 46

5,478

52 52 59 60 61 65 65 70 74 79 79

32 88 9 37 7

102 116 141 150 158 268

12 59 14 72

10,680 4,913 4,364 4,600 4,111 10,757 6,384 10,170 6,823 2,459 4,687 8,704 16,111 7,810 6,714 18,083 6,525 28,785 11,750

Note — ranked according to number of cases for 1 million of inhabitants — see col. 8

7

Work r e p o r t s of people's p r o c u r a t o r a t e s of provinces, Procumtorial pp. 98-268.

Yearbook of China

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Peking; a n d further, because it was the first province to get involved in business. T h e S h e n z h e n SEZ (Special E c o n o m i c Zone) was established in 1980, others followed. If o n e links GDP by inhabitant with a m o u n t of bribe (billions of RMB) received in any province, a n d n o t with rate of cases, the most c o r r u p t e d are, by o r d e r of a m o u n t , without any doubt, Fujian holds a new 'record' for fiscal 2000 with the Yinhua-Xiamen case. This is the biggest single corruption a n d smuggling scandal in the history of the People's Republic 8 — 23 billion RMB worth of goods were smuggled to China by o n e petitioner in the early 1990s 9 . Generally we see that the wealth of the province indicates the likelihood of the corruption level.

Table 4: Bribery across provinces

8

Province

Amount of bribe (Millions RMB)

Liangsu Zhejiang Guangdong Shandong Sichuan Shanghai Peking Liaoning Fujian

580 536 440 430 436 310 290 290 127

GDP/Inhabitant (Country rank) 10680 12181 11750 8704 4364 28785 18083 10170 10757

(7 lh ) (4 th ) (5 th ) (9 th ) (25 th ) (1st) (2 nd ) (8 th ) (6 th )

Susan V. Lawrence: « A city ruled by crime: A first set of trials reveal how rampant graft virtually ran the east coast city of Xiamen for years. The scandal highlights Beijing's vulnerability and threatens the fabric of the state», Far Eastern Economic Review, November 20, 2000. Up to 600 government officials are reported to have been linked to the scandal, including the families of some of the China's most senior leaders, China Daily, November 8, 2000. 9 South China Morning Post, March 10, 2001.

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Criminal Law and Criminal Procedure Law T h e first comprehensive statutes a n d regulations o n criminal law and criminal procedure law (xingshi susongfd) of the People's Republic of China were a d o p t e d by the second session of the fifth National People's Congress, July 1 st 1979, a n d became effective o n J a n u a r y 1 s t 1980. Yet the translation of the two laws only a p p e a r e d in the American j o u r n a l of criminal law a n d criminology, in the Spring of 1982. Later still, the foreign language press in Beijing published the two laws in Chinese with their English translation, a n d an EnglishChinese a n d Chinese-English Glossary in 1984. T h e criminal Law (Zhonghua Renmin Gongheguo xingfa) has two parts: firstly, General Provisions (zongze) with 89 articles (1 to 89) in 4 chapters covering guiding ideology, crimes, punishments, application. Secondly, there are Special Provisions (fenze) with 103 articles (90 to 192) in 8 chapters (see detail in Table 5). "Article 155: State personnel who takes advantage of their office to engage in corruption involving articles of public property are to be sentenced to not more than five years of fixed-term imprisonment or criminal detention; if the amount involved is huge and the circumstances are serious, the sentence is to be no less than five years of fixed-term imprisonment or death..."

Table 5: Details of the 8 special provisions of the criminal law articles I II III IV V VI VII VIII

Crimes of counterrevolution Crimes of endangering public security Crimes of undermining the socialist economic orders Crimes of infringing upon the rights of the person and the democratic rights of citizens Crime of property violation Crimes of disrupting the order of social administration Crimes of disrupting marriage and the family Crimes of dereliction of duty

Note: The crime of corruption and its punishment is covered by article 155, Chapter V, and article 185 (acceptance of bribes) in Chapter VIII.

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A decision of the 19 t h Session of the Standing Committee of the Fifth National People's Congress o n J u n e 10 t h 1981, m a d e it impossible to appeal to the S u p r e m e People's Court for cases in which the death penalty h a d b e e n given for murder, robbery, rape, causing explosions or arson. W i t h d e a t h s e n t e n c e s i m p o s e d o n offenders c o n v i c t e d of counterrevolution a n d corruption, the S u p r e m e Court still has to approve these, in accordance with the stipulations of the Criminal P r o c e d u r e Law. T h e revised regulations of the two laws were issued, o n J a n u a r y 15 t h 1997, for the Criminal p r o c e d u r e law, a n d o n D e c e m b e r 25 t h 1997, for Special Provisions of the Criminal law. They were published in the 1998 Procuratorial Yearbook of China: Criminal P r o c e d u r e Law p p . 327-366, Criminal Law p p . 401-412 1 0 . T h e revised Special Provisions p a r t of the Criminal law counts 10 chapters a n d 414 articles, at this time they became four times the volume of the 1979 statutes (containing, in detail — Table 5). Table 6: Revised Special Provisions I II III IV V VI VII VIII IX X

Crimes of endangering state security Crimes of endangering public security Crime of disrupting the socialist economy market 11 order Crimes of Infringing upon the rights of the person and the democratic rights of citizens Crime of encroaching on property Crimes of disrupting the order of social administration Crime of endangering the interests of national defense Crime of graft and bribery Crimes of dereliction of duty Crime of violation of duty by military personnel

Note: A new chapter — Chapter VIII on Corruption — emphasizes this aspect as one of capital importance. In detail we see it covers many aspects: Table 7. 10

English Version of Criminal Law is available in Charles D Paglee, Chinalaw Web, http://www.qis.net/chinalaw/prclaw60.htm n T h e chapter 3 of the 1979 criminal law account was on socialist economic order, with one word more, this order become of a market one.

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Table 7: Detail of chapter VIII (of revised special provisions) Articles

Corruption 12

382 383 384 385 386 387 388 389 390 391 392 393 394 395/1 395/2 396/1 396/2

Crime of corruption: definition for state personnel Punishments Punishments crime of misappropriation of public funds: definition Crime of accept bribes: definition Punishments as article 383 Crime of accept bribe as a unit Punishments as article 383 Crime of offer a bribe: definition Punishments: 5 years to life imprisonment Crime of offer a bribe to a unit Crime of introduce to corruption Crime of offer a bribe as a unit Punishments as article 383 Crime of own unknown source of huge sum property: definition Crime of hide foreign origin deposit: definition Crime of private appropriation of national assets 3 to 7 years and fine Violation of state stipulations by judicial and administrative organs: 3 to 7 years and fine

Article 382 states t h e definition: "State p e r s o n n e l who take advantage of their office to misappropriate, steal, swindle or use illegal m e a n s to acquire state properties constitute t h e crime of graft. T h o s e w h o are e n t r u s t e d by state o r g a n s , state c o m p a n i e s , state enterprises, state u n d e r t a k i n g s a n d mass organizations to administer a n d o p e r a t e state p r o p e r t i e s b u t take advantage of t h e i r office to misappropriate, steal, swindle or use o t h e r illegal m e a n s to acquire state properties also constitute the crime of graft".

12

Translated from Zuigao renmin jianchayuan guanyu shiyong xingfa fenze guiding de fanzui de zuiming de yijian (Issues of the supreme people's procuratorate on the concrete application of crime provided in Specific Provisions of rhe criminal law amendment), Procuratorial Yearbook of China 1998, pp. 401-412.

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According to the 1997 s u p r e m e people's procuracy yearbook, there were 116,961 corruption cases recorded: 77,365 were reported to the police — of these 53,533 were investigated a n d finally only 47,589 were b r o u g h t to trial. A m o n g these trial cases 8,266 were against civil servants a n d m e m b e r s of the party a n d government. According to the China's Statistical Yearbooks of 1999 a n d 2000 the trial figures for 1998 relate to 46,219 cases of corruption, a n d in 1999 there were 44,383 cases. T h e cases related to corruption u n d e r direct investigation by Procurator's offices 13 are listed in Table 8, opposite the articles of the chapter VIII, with smuggling as an additional component: Special provisions chapter III Crimes of u n d e r m i n i n g the o r d e r of socialist market economy — Section 2 Crimes of smuggling. Table 8: Cases related to c o r r u p t i o n

Types of Cases

Smuggling Corruption (administration) Bribery Misappropriation of public funds Collective illegal possession of public funds Unstated sources of large properties

1998

1999

1999/1998 (% change)

2,301 46,219 23,046 14,977 476 262

1,205 44,383 20,299 15,895 747 294

48.0 3.6 11.8 +13.5 +56.9 +12.2

Article 383 refers to the scale of p u n i s h m e n t s within the a m o u n t of graft (RMB): •

For m o r e than 100,000 RMB/petitioner: n o less than 10 years to life imprisonment • From less than 100,000 b u t m o r e than 50,000: n o less than 5 years • F r o m less t h a n 50,000 b u t m o r e t h a n 5,000: n o less t h a n 1 year ™ China Statistical Yearbook 1999, p p . 750-755; 2000, p p . 752-757.

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T h e death sentence is often prowling in Chinese law-courts : for cases greater than 100,000 RMB, there is a 383 additional sub-article: "In especially serious cases, those offenders are to be sentenced to death, and, in addition have their properties confiscated". T h e notion of serious is n o t specified; it is, at least, related only to the a m o u n t of graft. With respect to Article 383 there is an additional sub-article for 5,000 to 100,000 RMB — this also emphasizes: "In any serious cases, these offenders are to sentenced to life imprisonment, and, in addition, have their properties confiscated". In the h u g e smuggling-linked Yinhua-Xiamen case, 91 governm e n t officials were involved, a n d a further 167 linked cases have b e e n accepted by local courts, which involve 273 defendants. So far this has resulted in 213 defendants of 119 cases being found guilty

Table 9: Examples of death sentences cases: people executed for corruption offenses Name

Position

Crime

Yu Ding 15

Head of Public Security Bureau of Liuzhou City, Guangxi General Manager, Hubei Provine set up Yi F. Trading Company in Hong Kong

2.3 millions RMB in bribes from Hong Kong businessman running illegal casinos in Liuzhou Misappropriation of HK$ 188 million between 1996 and 1998, for gambling in Macau and stock speculation in Hong Kong

Jinjianpei 1 6

li

Amnesty International Report 2001: « A t least 1511 death sentences had been passed, and at last 1000 executions carried in 2000. These were believed to be only a fraction of the true figures, as death penalty statistics remained a state secret in C h i n a » . 15 South China Morning Post, 2001, May 31, and China Daily, 2001, June 1. 16 SCMP 2001, May 29.

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Table 9 (cont'd) Name

Position

Zheng Daofang 17 Deputy Director Sichuan Province Communications Department GaoYulin1

Deputy Head of Tianjin Educational Hygiene Department. Head of Tianjin, Examinations Department

Hu Changqing

Deputy governor Jiangxi province

Crime 1 million HK$ in bribes while holding senior responsible for positions for highway building between 1994 and April 2000 Leader of five sentenced for misappropriation of examination fees for 400,000 RMB from 1986 to 1995 (others didn't get death sentence, one was sentenced to death with two years suspension of execution) Death for accepting 5 million RMB in bribes between 1995 and 1999.

Note: Death Penalty — Section 5 of the Chapter III (Punishments) of the Amended Criminal Law

a n d sentenced 1 9 . Of these, 14 have b e e n sentenced to death, a m o n g t h e m , C h e n Yanxin, the former general m a n a g e r of the Fujian P e t r o l e u m Company. Jean-Pierre Cabestan, director of the H o n g K o n g based F r e n c h c e n t e r for c o n t e m p o r a r y C h i n a says: "The whole system is really in disarray. Chinese officials have two careers; there is the official one, in which they are part of an efficient and clean bureaucracy. That's the image China would like to convey. Then you scratch the surface and see what people are doing behind closed doors. It is frightening — for the whole system". 20

l1

SCMP 2000, November 17. Procuratorial Yearbook of China 1998, p. 419-421. 19 China Daily, February 28, 2001. 20 Quoted by Far Eastern Economic Review, November 30, 2000. w

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X i a m e n is o n e of the China's wealthiest p o r t cities, and, as we n o t e d above, corruption is n o t evenly distributed a m o n g Chinese provinces.

In a Dubious Battle 21 T h e fight against corruption has to deal with various forms of corruption, a r a m p a n t rural o n e , a n d that with an u r b a n style.

The Rural Battle-Field T h e landlords h a d b e e n wiped o u t a n d their property confiscated by the 1950s land reform. Their lands were redistributed a m o n g peasants, a n d the power of landlords was replaced by the power of the party. A new ' p r o c e d u r a l ' network was settled, whose main unit was the county, j u s t as for the land reform campaign. T h e r e are 2109 counties in China, a n d now power is in the h a n d s of county party chiefs; and, at a lower level, village bosses, who have legitimacy a n d now some power. Yet at last, true power lies within their position as party secretaries a n d / o r of their label as model worker, activist, son of a h e r o of the revolution, a n d so on. Almost n o t h i n g can be d o n e in Chinese counties without their agreement, a n d n o t h i n g at all may b e u n d e r t a k e n against their interest. In any case, with respect of corruption for example, they are very h a r d to track down because of the power of their network at the county level, a n d beyond. This power includes often the county-level judicial structure. In year 2000, Procuratorial organs checked all the 2100 cadres at county level right across China 2 2 — we are waiting for the outcome of this check. In rural China where the only direct elections are at village level, votes can be bought: "In January, the Legal Daily reported prosecutors had detained Jiang Jianzhong, the deputy chief ofJi County in Shanxi province, for paying 21

Homage to Steinbeck. ^, Fazhi yu xinwen, March 2000, p. 30.

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500 RMB to 40 members of the county People's Congress to vote for him. Only one person reported the bribe to the authorities, as the other 39 considered it normal behavior... Jiang, who is in police custody, claims he did nothing wrong, and that giving such presents was normal and that he was the victim of a political struggle. Professor Cai Dingjian, from the China University of Politics and Law said: the 500 RMB paid in Ji county was more than enough to secure a vote. In other places, candidates gave a packet of cigarettes, a shirt, a tea set, or a foldable umbrella for a vote. This is due to the poverty of the representatives and their lack of democratic awareness". 23 An example of such a local power is Wang Baojing in the Wu Fang case: Wu Fang, female, b o r n 1958 in Beitun n e a r F e n g h u o , Shaanxi, married Wang Maoxing in 1981. Maoxing is related to Wang Baojing, a 1957 m o d e l worker a n d party chief village boss. Maoxing was said to be a layabout a n d a wife beater, thus Wu Fang asked for a divorce a n d Maoxing refused. In 1987 Wu Fang ran away to H a n c h e n g , 250 kilometers away. Fearing this action of Wu Fang would tarnish the reputation of the m o d e l village, a n d e n d a n g e r the flow of subsidies a n d loans from the state, Wang Baoxing sent 2 policemen a n d h e r husband's elder b r o t h e r to bring h e r back. They promised to make h e r go back to the village a n d said they would let h e r visit h e r parents. Instead, they locked h e r u p a n d refused to allow the divorce. Wang Baoxing's son, Wang Nongye, gained entrance to the cell by night then went out, switching off the light in the room. T h r e e women rushed in together with h e r h u s b a n d — he, or o n e of the three women, stripped h e r a n d threw sulfuric acid on h e r face a n d breasts. She was temporary blinded. Most people in the crowd outside felt sympathy for h e r fate, b u t nobody dared to go in because there were officials involved. Although sent to hospital, h e r parents h a d to sell their belongings a n d the entire proceeds of that summer's harvest to pay for c o n t i n u e d t r e a t m e n t for her. Yet h e r h u s b a n d was arrested a n d executed, a n d his b r o t h e r jailed for providing the acid, b u t they 23

Mark O'Neill, South China Morning Post, March 10, 2001.

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were j u s t scapegoats, the real culprit being Wang Nongye. Further involved are Nongye's father, a n d the m o d e l worker a n d the village boss Wang Maoxing acting as party chief of a m o d e l village. Wu Fang h a d almost given u p h o p e of getting justice w h e n a Beijing journalist from China Youth Daily contacted h e r in 1996. T h e journalist wrote an article casting d o u b t on Baojing's records as a m o d e l worker dating back to the 1950s, during which time, h e claims, the figures for F e n g h u o ' s grain p r o d u c t i o n were vastly exaggerated. Soon after the article appeared, China Youth Daily found itself subject of a libel suit, b r o u g h t by three defendants: Wang Baojing, Wang Nongye, a n d the village of F e n g h u o . T h e newspaper retained several t o p lawyers from Beijing, including Wang Weiguo, the law professor who also advises President Jiang o n legal reform. But in Shaanxi court, the plaintiffs d e m a n d e d US$600,000 damages because they claimed that, since the article a p p e a r e d the apple trees n o longer b o r e fruit, a n d the chickens h a d stopped laying eggs. T h e j u d g e d i d n ' t dismiss these lines of reasoning, a n d finally found against China Youth Daily a n d o r d e r e d it to pay 11,000 RMB in damages to the plaintiffs. Wu Fang has remarried despite h e r outward appearance, b u t she still needs surgery o n h e r corneas, a n d h e r eyesight has never fully recovered from the acid. Following in his father's footsteps, Nongye was declared a model worker in 1992, a n d is also an influential party m e m b e r in the province. Professor Wang Weiguo is still fighting the appeal. 2 4

The Urban Battle-Field Urban-style corruption, is linked to the business of the new marketoriented Chinese economy, which is broadly the p r o d u c t of the privatization p r o c e s s r e s u l t i n g from t h e d i s m a n t l i n g of state enterprises. This urban-style corruption is n o m o r e a matter j u s t of illiterate or semi-illiterate p o o r countrymen, or older cadres whose 24

Summary of Time, October 9, 2000 article.

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rise is linked to their political background, but, rather of the younger graduates a n d postgraduate cadres, the fleuron of the new economy. Such is the Teng G u o r o n g case, h e a d of the Jiangxi Province financial d e p a r t m e n t , who was sentenced to 7 years imprisonment, o n December 30 t h 1999 by N a n c h a n g intermediate People's Court, for accepting bribes to the value of 120,000 RMB 2 5 . T h e article went on to say: c o m p a r e d to o n e million, ten of millions of Renminbi is a big corruption case, just as 120,000 RMB is a tiny o n e (a small sorcerer). But, small or big, the spirit is the same; sorcerers are swimming in the same swamp. Born in 1945, Teng G u o r o n g graduated from central financial school a n d became deputy-manager of Jiangxi province financial d e p a r t m e n t in 1984, a n d h e a d of d e p a r t m e n t in 1995. T h e year 1993 was one of dismantling of n u m e r o u s state enterprises, to make private companies, which, looking for sites to hire, h a d to seek advice from financial departments. O n e , which got a successful outcome, thanks to Teng, gave him a 7800 RMB cooler as an acknowledgement. This was the first offer of a bribe m a d e to him, b u t h e did turn it down. However, h e did n o t make a report, such form of an offer being common. In 1992, Jiangxi financial school was setting u p 'Huaxing' a real estate company; but, as they were short of assets, the company director asked Teng for help. H e p u t t h e m in touch with the h e a d of Jiangxi province financial d e p a r t m e n t , who transferred an illegal cash deposit to the company's director account; Teng's mediation was acknowledged by a 10,000 RMB bribe in 1994. In 1995, an enterprise requiring new premises was looking for a piece of l a n d to buy in Yichun, a Jiangxi Province Township. T h e price seemed to have b e e n agreed with the township authorities, but, at the last m o m e n t , Yichun financial b u r e a u asked for m o r e funds. Teng was in charge of Yichun b u r e a u some while before, a n d h a d known the buyer there, so Teng was called o n to help. Having settled a new price a g r e e m e n t t h r o u g h influence, 25

«5/JZ'CT- wan jidao Jiangxi

2000, February, p p . 12-14.

guoshui juzhang»,

Fazhi yu xinwen,

(Law a n d news),

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Teng got 18,000 RMB from the buyer in 1996; later the township's greed compelled a buyer to call for Teng's help again, which got him 10,000 RMB more. In 1997 for his final success his driver, to whom he had refused to give a share of the money, betrayed Teng, probably. This is far from the huge Cheng Kejie or Yinhua-Xiamen cases, but the Teng case may be held as a model case of corruption by one of the new urban-educated high-ranked cadres. The sentence of 16 years in prison meted out to Chen Xitong in 199826 squares more with the higher-ranking, older cadres, whose rise is linked with their political background. One of the main factors in that case was Chen's mistress, who worked as a manager in an upmarket hotel in Central Beijing27. Sex is one of the main ways used to corrupt, as in the Chen Kejie case, whose mistress Li Ping, was sentenced to life imprisonment. In almost 10% of the 23,000 bribery cases brought against officials in the final eight months of 2000 we see: "Extra marital affairs have become so rampant among corrupt officials convicted on the mainland that Chinese legal experts are debating whether it should be made illegal to bribe someone with sex".28 We remarked before that investigations by the police might be hard to make if corruption is truly efficient, as in the Jiang Yanping and the Yinhua-Xiamen cases. Chen Rongjie, a retired 84-year-old delegate to the Hunan Province National People's Congress, set himself up as a one-man ombudsman against corruption, almost as it were, a Chinese private-eye. At the end of 1988, he received a report from workers at a department store managed by Jiang Yanping, 42, female, accusing her of huge corruption. Chen conducted an investigation that confirmed the 26

Former mayor of Beijing, member of political bureau of CPC Central Committee, Secretary of CPC Beijing municipal committee, deputy to 6th through 8th NPC, Who's Who in China Current Leaders, Foreign Language Press, Beijing, 1994, p. 65. 21 South China Morning Post, April 18, 2001. w Wen Chihua: <scSex for power», South China Morning Post, February 7, 2001.

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workers' story: he then sent a report to the Hunan Daily, but the report was never published. After another report from the workers, the report from Mr. Chen was sent to the local office of the prosecutor, which also did nothing. In contrast, Jiang fired the workers; and subsequently three attempts have been made to kill Mr. Chen, who sustained injuries in the course of these attacks. In 1988, having got more evidence, Mr. Chen made another report to the Supreme People's Procuratorate. Jiang was at last arrested on August 1999. She was accused under Penal Law article 395/1, of having unknown sources relating to 10 million RMB assets as cash, bonds, bank savings, shares, apartments and jewelry. Born in a poor rural Hunan county, Jiang moved to Changsha in 1982 where she took a job as a clerk in a department store. She became the mistress of its deputy director, who two years later made her the manager. She becomes a Communist Party secretary, studied at the Central party school in Peking, where she was considered as a model party member. The prosecution said she had obtained these positions through a mixture of bribery and sex. During her 20 months in a detention center before the trial, Jiang became the mistress of the deputy director of that center, and paid him tens of thousands of RMB. In return, he provided her with a telephone and other means to prepare her defense. 29 Another example concerns the Xiamen Yinhua case. When the anti-corruption inspection team used Xiamen's Wanshou guesthouse as a base, the head of the team forbade all the members to leave the guesthouse to prevent them from giving in to the ceaseless attempts at corruption outside. The team is reported to have discovered its phones were being tapped. Investigations allegedly revealed that those doing the tapping were members of the local state-security bureau with links to Xiamen's Vice-Mayor Lan Pu. The deputy police chief even warned the — 'godfather' — Lai Chanxing, that police planned to arrest him and urged him to flee 30 29

Mark O'Neill, Power for sexual favours. South China Morning Post, April 18, 2001. Far Eastern Economic Review, November 30, 2000.

30

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"Our market economy has developed considerably but the reform of our political system lags seriously behind. There is concentration of power, with a high concentration in the hands of leaders... The benefits power brings to an individual make some people mad to obtain it". 31

Conclusion Corruption in mainland China today is n o t an outcome of the process of reform, such as simple loss of ethics for example, b u t rather a consequence of the change from a non-monetary system in Mao's time, to a monetary o n e in the post Mao era. T h e Maoist period was i n d e e d a h a r d one: there was n o free m o v e m e n t of labor or foreign travel. N o r m a l trading patterns, dictated by market-based supply a n d d e m a n d , did n o t exist as the cash flow of all companies was strictly controlled by the state. Corruption for purely financial gain was limited by the lack of opportunity to make use of money. Chinese society was strictly policed, a n d any large b a n k deposit aroused suspicion a n d denunciation, n o r was there any way to transfer money abroad. Access to scarce goods was reserved for the nomenklatura, so the only way to obtain these goods was to rise in the state/party hierarchy, or to have influential connections within it. T h e right behavior was to follow the state/party's way, whatever it might be; as n o t to d o so could be a matter of life or death. T h e worst examples probably arose t h r o u g h the false reports m a d e during the so-called 1958-1960 years "Great Leap Forward" (in reality the Great Leap F a m i n e ) . H e r e i n the provincial a n d local authorities forecast record grain harvests, resulting in further high government requirements to be d e m a n d e d from the countryside (Yang, 1996). In fact, p r o d u c t i o n was actually d r o p p i n g , which later caused the starvation of millions of peasants 3 2 . This is n o t true corruption b u t

31

South China Morning Post, May 29, 2001. 1959 year: 672 million total p o p u l a t i o n , 1961, 658 million, 14 million less is t h e lower valuation (without births), Zhongguo tongji nianjian (China Statistical Yearbook: CSY) 1988, p . 97. 32

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rather a blindness to the facts, midway between the preservation of some guanxi connections and a zeal leading to the denial of reality. The so-called Reform Age, begun in 1978, was a shift from an ideological framework to one dominated by economics: it moved away from the denial of reality in seeking material advantages. During the former Maoist period, it was obligatory to respect the personality cult surrounding the leader. In the reform-market period, there were no more cults, individual thinking was no longer forbidden, nor the ability to voice it. Even making money was allowed and encouraged. In this context, day-to-day business has fuelled the use of connections (guanxi). While corruption may be classified on one hand as ordinary human behavior — in China it just a lot more widespread than elsewhere — on the other hand, corruption in any form is reprehensible. We are left with dilemma — is bribery an alternative to a lack of connections? Or, are connections only one step before offering bribes? Or, is bribery more useful than connections? The use of connections is a way to get anything, generally from the social or bureaucratic strata above, depending on the strength of the network connections of the contracting parties, petitioner and solicited. The solicited is chosen because he has the right guanxi If the petitioner has the right connections also, they both can do business, since the petitioner will be able to repay his debt later. But what if the petitioner does not possess the right connections? He won't be able to reciprocate, and so he has to bribe; there is a credit account in the first case, and cash down payment in the second. If the petitioner is asking for a lot, he may have to supplement the future use of his own connections with a bribe. The use of connections is difficult, if not impossible to trace in China, as in any country. Let us agree here that the use of influence is a traditional Chinese way to promote something or somebody: indeed this would be the case if one were to take a strong Confucian stance. Herein one would know one's place in the official hierarchy, father to son, etc. During the Maoist era, connections — given they were untraceable — were in common use, but corruption wasn't because of the lack of money or goods to bribe with, and

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because it was too easily traceable t h r o u g h denunciation. We accept h e r e a little leeway in o u r argument, since the use of guanxi for nonmonetary gain can incline close to bribery. T h e transition from the n o n m o n e t a r y Maoist era to the system of today has b e e n rough. It is characterized by a quite s u d d e n flow of goods a n d money, a n d a simultaneous relaxation of social control. A growing minority now has found ways to get access to goods a n d money, while their recent b u t dramatic rise in GDP has b e e n the largest in the world (on a percentage base) in a country which is still the most overpopulated, a n d which until a short time ago was o n e of the poorest. As China b e c a m e wealthier, accounted for by money a n d goods (and sex opportunities); the volume of money circulation increased; connections were for sale, a n d bribing took the place of influence so o p e n i n g the way to soaring corruption. Fewer a n d fewer officials agreed to be repaid in kind, m o r e a n d m o r e asked for cash, rather than goods or services. China has moved from a regime with a scarcity of goods as in the Maoist era, to o n e plenty of goods (if in the right area, with the right connections). T h e price of influence is soaring; it is simply a matter of inflation. Bribery is an imbalance between m o n e y a n d power (sex a n d power is a n o t h e r description). T h e m o r e money people have, the m o r e they can bribe power holders; a n d for corrupters all power is for sale, it is only a matter of price. Those people who have n o power for sale, or n o resources to bribe power holders are excluded. A m o n g power holders, the notion of public service is only j u s t surfacing, which makes easier [for the m o m e n t ] the continuation of informal networks a n d links with organized crime. Smugglers can take advantage of the reluctance of local people to pay taxes by supplying c h e a p e r goods as in the Fujian Xiamen-Yuanhua case. This makes smugglers p o p u l a r (folk heroes even), a n d corruption is bearable. T h e ratio of civil servants (including justice a n d the police) to the total population in China is low. In the J u n e 5 t h edition of the Renmin Ribao (People's Daily) a front-page r e p o r t indicated a total of 41,130 million cadres, including 7 million in organizations, 20,640

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million in institutions a n d 13,390 million in enterprises. T h e 20,640 million institutional cadres supporting 1,259,090,000 inhabitants overall yields only a 1.6% ratio. In contrast, there are 3 million French civil servants, giving a 5% ratio. T h e judicial system accounts for 220,000 3 3 (a 1.06% ratio to the p o p u l a t i o n ) . Considering educational qualifications 48.5% of all cadres hold less than a General Certificate of Education, t h o u g h this 'relative failure' includes 39% of Judicial cadres. T h e r e are 3 million Chinese students for a 1,26 billion population, only a 0.23% ratio. In contrast, there are a b o u t 2 million French students of its population of 60 million, a 3.33% ratio — some 14.4 times m o r e than China. We must ask if the gap between developed countries a n d China ever b e filled? Because of such p o o r conditions, the average Chinese does n o t feel h e or she has a stake in their society: they b e c o m e indifferent a n d therefore lack respect for the law, which makes the battle against corruption so vague. And it is from this lack of civic participation, probably m o r e than some old habit that we find a quaint 'normality' — "only o n e person r e p o r t e d the bribe to the authorities, as the other 39 considered it normal behavior" as quoted above. This makes it very difficult to create a real democracy. It is imperfect, b u t only the way forward we think is to introduce systems of checks a n d balances to able to restrain, or, at least, to limit corruption. Otherwise, honest people in China will be like Bonturo: A quella terra, che n ' e b e n fornita: o g n ' u o m v'e barattier, fuor che Bonturo; del n o , per li denar, vi si fa ita. 34

:yi

CSY, p . 23. Dante Alighieri, La Divina Commedia, Inferno, Canto XXI, 40 (Oscar M o n d a d o r i 1985, p . 183).

34

That land hath store of such. Alle men are there, Except Bonturo, barterers: of 'no' For lucre there an 'ay' is quickly made. Translated by T h e Rev. Francis Cary (Ed). Cassell Tetter a n d Galtin.

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References H u A (2000) C o r r u p t i o n a n d anti-corruption strategies in China. Presentation to the Carnegie e n d o w m e n t for international peace symposium, Corruption in China, C e n t r e for C h i n a study, C h i n e s e a c a d e m y of sciences, Q i n g h u a University, February 1 3 t h 2001, http://www.ceip.org/ f i l e s / e v e n t s / A n g a n g H u Event.asp?p=l. Teiwes FC (1993) Politics and Purges in China, Rectification and the Decline of Party Norms 1950-1965. New York-London, ME Sharpe. KinkleyJC (2000) Chinese Justice, the Fiction, Law and Literature in Modern China. Stanford, Stanford University Press: 2. D a m o n FY (2000) R e n g e z h a n g h a i wuxing s h a s h o u ( U n t r o u b l e d e personnalite: le m e u r t r i e r informel), Renmin Jingcha (People's Police). F o r t h c o m i n g in Perspectives chinoises, Centres d'etudes francais sur la C h i n e c o n t e m p o r a i n e , R o o m 304, Yu y u e t Lai B u i l d i n g , 4 3 - 4 5 W y n d h a m Street, Central H o n g Kong. T a n n e r H M (1985) Strike Hard, Anti-Crime Campaigns and Chinese Criminal justice, 1979-1985. Ithaca, Cornell University Press: 37. Yang DL (1996) Calamity and Reform in China, State, Rural Society and Institutional Change since the Great Leap Famine. Stanford, CA, Stanford University Press: 43.

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Chapter 8

Culture and Level of Industrialization as Determinants of Corruption in Asia

Domenic Sculli

Introduction Cross-cultural research into different m a n a g e m e n t styles attempts to d e t e r m i n e the effect of the level of industrialization, a n d also the role that culture plays. T h e general finding is that the managem e n t style is a function of the level of industrialization, b u t is also t e m p e r e d by cultural characteristics. T h e same question can be posed c o n c e r n i n g corruption: to what extent is it d e p e n d e n t o n the level of industrialization a n d to what extent is it d e p e n d e n t o n culture? This chapter argues that as the level of industrialization a n d political control alters, so will the nature of corruption, progressing from disorganized to organized. T h e chapter also attempts to answer the question of w h e t h e r Asian culture is m o r e p r o n e to corruption than Western culture. While certain characteristics of Asian culture may give the impression that it is m o r e p r o n e to corruption, the proposition that a firm link exists between culture a n d corruption seems untenable.

Asian Culture O n the question of what comprises Asian or Oriental culture, the very size a n d diversity of the Asian continent makes any attempt at

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an answer virtually impossible. T h e Asian continent takes in a large part of Russia and, in a sense, the middle east, including Israel. T h e r e is also the large a n d diverse Indian subcontinent a n d the many Islamic areas, stretching as far east as Indonesia a n d the s o u t h e r n Philippines. In the context of this chapter, culture essentially refers to the culture of C h i n a a n d to that of some of its neighbors, particular those with some historical influence from China, such as Japan, Korea, etc. In trying to describe the essence of Chinese culture, o n e should n o t be looking for a single point in the multidimensional cultural space. T h e approach should be o n e of trying to eliminate certain regions of the space and hoping that a small enough space remains in which the core of Asian cultural values abides. U n d e r s t a n d i n g a n d describing Asian culture has occupied the minds of many writers. Oscar Wilde (1948) in his essay "The rise of historical criticism" suggests "the protective spirit, which is characteristic of that people (i.e. the Chinese), proved as fatal to their literature as to their commerce." So h e r e we have the first of many adjectives used to describe Asian culture — protective. In the same essay Oscar Wilde also suggests that the Chinese culture c o n t a i n s : "a s o b e r n e s s of j u d g e m e n t " a n d "a f r e e d o m from invention." This view is also somewhat supported by the writing of the ancient Chinese philosophers such as Laotse a n d Chuangtse, who seem to advocate the necessity of being in harmony, a n d argue a middle g r o u n d position of non-interference. A good translation into English of the work of these two philosophers was d o n e by Lin Yutang (1955). However, Oscar Wilde's suggestion that individualism a n d free c o m m e r c e are c o n n e c t e d may n o t be totally appropriate in a m o d e r n industrial society. T h e large a n d powerful corporations that have evolved in the last half of the 20th century now control a large p a r t of the supply chain a n d the role of the individual e n t r e p r e n e u r has possibly b e e n very m u c h diminished. Salvador d e Madariage (1963) in an essay o n the unity a n d diversity of E u r o p e puts forward the view that individualism in Asia is just b e g i n n i n g to count. This is also supported by the often-cited work of Hofstede (1991), that c o n c l u d e d that individualism in Chinese societies ( H o n g Kong, Singapore, Taiwan) is significantly

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lower t h a n in the Western societies (USA, Australia a n d Great Britain). This t h e m e has also b e e n taken u p by many authors a n d researchers with the general conclusion that Asian culture places far m o r e emphasis o n the g r o u p than o n the individual. So pairs of words are now frequently used to describe East-West cultural differences, such as "group, individual". O t h e r related pairs of words can also be established using the previous two-word pair as seeds. Individuals are argumentative a n d impulsive, so we get the pair "harmonious, argumentative". This last pair is also supported by the ancient Chinese philosophers who advocated a n e e d to be in h a r m o n y with nature. These adjective pairs can go o n a n d on, even leading to a the most basic pair of "farmer, h u n t e r " U s i n g pairs of words to m e a s u r e c u l t u r a l differences a n d managerial traits seems to have b e e n first used by Ghiselli (1971) a n d co-workers. T h e pairs are n o t direct antonyms, b u t are adjectives that are equally desirable or undesirable. Ghiselli's a p p r o a c h was to ask respondents to make a choice from a pair that best describes him or her, or that least describes t h e m when the pair consists of undesirable adjectives. This equally desirable or undesirable choice is m e a n t to stop respondents from giving what they consider to be the right or appropriate answer. Ghiselli (1971) presents 64 pairs of such words, examples include: Capable or Discrete, Logical or Adaptable, Unambitious or Reckless, a n d Nervous or Intolerant. Evans a n d Sculli (1981) applied this in a cross-cultural context in H o n g Kong, a n d many of the responses were in line with cultural expectations. Analysis of individual word-pair scores showed that there are certain word pairs that appear to evoke different responses in the USA a n d Asia. For example, Chinese managers are said to be m o r e c o n c e r n e d with "face" t h a n their American counterparts. "Face" is an oriental concept, whereby any offence or personal slight is to be avoided at all cost, by b o t h parties in any transaction (Ho, 1976). In addition, many Orientals are t h o u g h t to willingly accept the authority of others. Echoing this, H o n g Kong subjects felt that being "fussy" at least described t h e m reasonably well, as against "submissive". F u r t h e r m o r e , t h e H o n g K o n g C h i n e s e , p e r h a p s

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because of their u n i q u e history, have developed a reputation for pragmatism, a n d in accord with this they describe themselves as: "capable" r a t h e r than "discreet"; "practical" rather than "industrious"; "realistic" r a t h e r t h a n "tactful". A practical, capable, a n d realistic m a n would be a fitting description of a pragmatist. Taking the g r o u p culture concept as the basic dimension, o t h e r p o p u l a r views of Asian culture follow. A g r o u p will n e e d to arrive at consensus decisions, suggesting that Asians are better at this type of decision making. A g r o u p also must be sensitive to the views of others in o r d e r to maintain stability, leading to the concept of "face" a n d the n e e d n o t offend the opposition. T h e p r o p e r functioning of a g r o u p requires a certain degree of regimentation a n d loyalty: the J a p a n e s e are often described as a regimented society with a high degree of loyalty. Individualism is usually associated with creativeness, a n d quite often Asians are described, especially by Westerners, as lacking creativity. T h e flow of commercial culture a n d technology from the West into Asia tends to lend a certain degree of support to this view. T h e J a p a n e s e manufactured products in the late 1960's a n d the early 1970's were often described as merely imitative. T h e J a p a n e s e were able to improve the manufacturing processes a n d reduce p r o d u c t i o n costs of products developed a n d p a t e n t e d in the West. However, t h e view t h a t Asians are n o t creative can b e challenged: ancient China was responsible for many inventions, p a p e r m o n e y a n d g u n p o w d e r b e i n g two t h a t a r e f r e q u e n t l y m e n t i o n e d . Shoji O k u m u r a (1985) cites a n u m b e r of J a p a n e s e inventions, a n d suggests that there is a general misunderstanding about technological inventions, a n d that the J a p a n e s e are n o less able to think creatively than their Western counterparts.

Culture and Corruption Taking the question of corruption a n d culture further, is it possible to conclude w h e t h e r the two are related, a priori? Words such as group, harmony, face, regimentation, a n d loyalty are freely used by Westerns to describe Asians. It seems that an analysis, using the

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accepted m e a n i n g of these words can be attempted, to d e t e r m i n e if, for example, a person who is striving to achieve h a r m o n y is m o r e likely or less likely to be corrupt than a person who is not. Is a person who is very c o n c e r n e d with the concept of "face" m o r e likely or less likely to be corrupt? It seems that o n e would n e e d to conclude that a person c o n c e r n e d with h a r m o n y a n d saving "face" would be less likely to be corrupt than a person who is not. T h e "farmer, h u n t e r " pair distinguishes between a farmer who has litde freedom to act a n d must act in h a r m o n y with the seasons, a n d the h u n t e r who needs prowess to trick his pray. Which of the two is m o r e likely to be corrupt? If the victim of the h u n t e r was able to have a say in the matter, h e or she would u n d o u b t e d l y describe the h u n t e r as immoral a n d corrupt. T h e word "loyal", which is often applied to Chinese culture, is m o r e interesting. H e r e too we can ask the question as to w h e t h e r a person who describes him or herself as loyal is m o r e likely to be c o r r u p t than a person who prefers to be described otherwise. Lack of loyalty or discretion by some m e m b e r s often exposes the c o r r u p t organization to the authorities — by the actions of the 'whistle blowers' of today's society. Even the police will freely admit that penetration into these organizations is virtually impossible w h e n b o t h loyalty a n d unity are firm. It is, therefore, well accepted that loyalty is an essential trait that m e m b e r s of organizations engaged in corruption must posses. However, this does n o t necessarily m e a n that a person generally described as loyal is m o r e likely to be corrupt by nature, t h o u g h h e or she is m o r e likely to be recruited into organizations that are engaged in c o r r u p t practices. T h e r e are a n u m b e r of culture related practices that may be c o n d e m n e d , especially by u n r e l e n t i n g Westerners, as being corrupt. In J a p a n there is a well-established tradition of giving gifts, especially at New Year a n d o n o t h e r festive occasions. T h e J a p a n e s e are often at pains to p o i n t o u t that this tradition a n d practice n e e d n o t necessarily be, n o r should it be, interpreted as corrupt. It has long b e e n a Chinese tradition also to give money, called lucky money, in specially designed small p a p e r packets. This too is d o n e o n festive occasions a n d during the L u n a r New Year celebrations. H o n g Kong's

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independent commission against Corruption has now published some general rules concerning the size of such gifts, a n d civil servants a n d o t h e r government-funded organizations have largely stopped or severely curtailed this practice. W h e t h e r this tradition of giving gifts a n d lucky money makes donors a n d receivers m o r e likely to b e c o m e corrupt is also doubtful. But such practices are gradually diminishing, n o t because they may e n c o u r a g e o t h e r a n d m o r e severe forms of corruption, b u t because in a m o d e r n a n d sanitized society they give an undesirable impression, even if it is only (sic!) to Westerners. In the c o n d u c t of business transactions, the Chinese follow a set of unwritten rules often d e n o t e d by the term "Guanxi". T h e term has n o direct translation into English, b u t can be loosely defined as a code of c o n d u c t that tends to establish a n d n u r t u r e trust in personal relationships; the term is discussed a n d interpreted well by Luo (1995, 2000), a n d by Wong a n d C h a n (1999). Guanxi is a measure of the extent a n d strength of personal relationships; a n d a person with good Guanxi should be able to deal quickly a n d effectively with g o v e r n m e n t bureaucracies a n d achieve results that are normally difficult for ordinary mortals to achieve. P r o p o n e n t s a n d admirers of guanxi p o i n t to its effectiveness a n d smoothness in facilitating business transactions, a n d criticize the heavy reliance o n the legalistic process in the West, especially in the USA. However, contracts a n d written agreements must provide an avenue for recourse to the law when business relations turn sour. While a business runs smoothly, guanxi is fine, b u t when the business tide turns a n d there is a n e e d to pick u p the pieces, the situation can b e c o m e clumsy a n d even dangerous. Many j o i n t ventures in China have collapsed in recent years, putting the foreign partners in a very difficult position. In an industrialized economy operating u n d e r the rule of law, such partners will have the protection of the law of limited liability, b u t in C h i n a they may be forced by criminal elements to pay compensation to the local partners, a n d may even be tried a n d convicted by the local courts. This suggests that guanxi, t h o u g h fine in its objectives, c a n n o t be a substitute for the rule of law. A tight guanxi relationship can also affect the pluralism in relationships, leading to a tightly controlled g r o u p with possibly only

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o n e supplier at each stage of the process if in a supply chain. Some of the large J a p a n e s e manufactures are still practicing very tight control over suppliers of c o m p o n e n t s a n d insisting that suppliers must n o t supply similar c o m p o n e n t s to o t h e r companies. O n the question of corruption a n d guanxi, while o n e c a n n o t quarrel with the concept of good business relationships, an undesirable and tightly closed system may develop u n d e r guanxi that may stifle competition. China, of course, has b e e n u n d e r Communist rule for m o r e than half a century, and Chinese culture has not escaped satirical comments from pro-Communist writers. Leftist writer Lusin who died in 1938, see Lin Yutang (1955), makes such a c o m m e n t when in o n e of his epigrams, #20, h e states that: "The Chinese culture is the culture of serving one's master, achieved at the cost of the misery of multitudes. Those who praise Chinese culture, w h e t h e r they be Chinese or foreigners, assume that they belong to the ruling class." H e also gives another insight into Chinese culture in epigram #16: "Chinese people love compromises. If you say to them 'This r o o m is too dark, we must have a window m a d e , ' they will oppose you. But if you say 'Lets take off the roof,' they will compromise with you a n d say 'Lets have a window'". T h e question that arises h e r e is whether a person who is willing to compromise is more likely to become corrupt. If compromise does n o t lead to the a b a n d o n m e n t of principles, a n d there is n o evidence that in their 'love for c o m p r o m i s e ' the Chinese cross this line, t h e n corruption a n d compromising n e e d n o t be related. A brief discussion of Taoism may also be helpful at this stage of our consideration of the question of culture a n d corruption. Lin Yutang (1955) states that Loatse's b o o k of Tao is essential in u n d e r s t a n d i n g the Orient, or Chinese behavior. T h e two main exponents of Taoism are Loatse a n d his disciple Chuangtse (the spelling used by Lin Yutang). Loatse's b o o k of Tao consists only of about 5000 words — brief by modern-day standards, b u t at that time, quite formidable. Chuangtse's writings consist of some 33 chapters, b u t many of the chapters are regarded as forgeries; Lin Yutang presents 11 chapters on the Tao (covering 75 pages), which h e considers to be the most philosophically important. Unlike the m o n u m e n t a l writings of the Greek philosophers, the writings of these

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two philosophers are quite short a n d can be read comfortably in o n e or two hours. T h e translation by Lin Yutang (1955) is, in the author's opinion, perhaps the best of any. O t h e r translations seem to greatly trivialize the subject matter. We know that trivialization must necessarily occur to some extent in any translation, b u t large doses seem to be almost unavoidable when the root language is Chinese. It is generally acknowledged that Lin Yutang was very knowledgeable in his own culture a n d also quite comfortable with Western c u l t u r e . His translations seem to provide good answers to the exact problems, whereas o t h e r translations, especially those by Western writers, seem to give accurate solutions to some approximate or imagined problem. Taoism is n o t a religion, b u t is a philosophy of life; this might be contrasted against the fact that the main religion, if o n e is practiced in China, is Buddhism. A religion normally assumes the existence of an after life, a n d it requires followers to pattern their lives in such a way as to reap m a x i m u m rewards in the after life. Taoism advocates certain actions a n d inactions that lead to some peaceful stability of b o t h the individual a n d society. T h e notions presented by these two philosophers are considered a n d argued from b o t h the thesis a n d the antithesis, a n d the solutions they propose seem to lean towards the retention of stability a n d the statuesque. T h e statements by Oscar Wilde: "a soberness of j u d g e m e n t " a n d "a freedom from invention" seems therefore to be obvious consequences of Taoism. T h e Chinese will therefore be slow to absorb the developments of the m o d e r n economies, especially those developments that require changes in their cultural values a n d attitudes. O n the question of Taoism a n d corruption, it seems very unlikely that a serious admirer a n d practitioner of Taoism would sanction corruption; the contrary position can be strongly argued. Confucius, being an advocate the middle way espoused by the two philosophers, comments on corruption in o n e of his aphorisms: " ... to enjoy wealth a n d power without coming to it t h r o u g h the right means is to m e like so many floating clouds. From all the above discussions it seems safe to conclude that a relation between culture a n d corruption, if it can be established, would, at best, be only a very loose o n e . And, indeed, o n e would be

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making a very strong racial a n d controversial statement if o n e felt able to firmly establish a relationship between culture and corruption.

Corruption and the Level of Industrialization A relation between corruption a n d the levels of industrialization or economic development seems easier to accept. Experience worldwide seems to point to the existence of this relationship: in the Asian context, it is easy to point to countries such as Indonesia a n d the Philippines as evidence of this relationship. While industrialized J a p a n is n o t e x e m p t from routine high-level corruption scandals, such incidents a p p e a r to be m o r e refined a n d sophisticated. At the early stages of economic d e v e l o p m e n t corruption can be easily observed a n d has a disorganized appearance. Disorganized corruption occurs in situations that may be generally described as repetitive; a n d repetitive situations can occur where documents concerning a new business n e e d approval by the authorities, or where some regular payment needs to be m a d e to a corrupt organization for protection or insurance. At this stage the scene is set for some form of 'easement' or bribe to be offered — b u t there has to b e a taker to complete the act! Experience in the early 1990's in China bears out this disorganized image. It was n o t u n c o m m o n for a j o i n t venture company involving foreign partners to pay a local official their dues, which were d e m a n d e d to obtain authorization for local services. However, a n d too often, a few days later a n o t h e r would replace the official previously in charge, and, as far as the new official was concerned, the decisions of the previous official were n o t biding. T h e reasons given could be that the previous official h a d overlooked certain rules a n d regulations — a n d the company was thus forced to deal with a new person, a n d go t h r o u g h the various p r o c e d u r e s again. This disorganized corruption could also be easily observed in H o n g Kong in the early 1970's. Mini bus drivers would pay dues to the police at various roadblocks, only to discover that at the next roadblock a n o t h e r g r o u p of policemen would d e m a n d a n o t h e r payment. This problem was solved by the mini bus drivers d e m a n d -

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ing that a sticker be given, which could be displayed on the windscreen. T h e next g r o u p of policemen at the next roadblock would t h e n see the sticker a n d know that payment h a d b e e n m a d e . Such was the state, extent, a n d openness, of this disorganized corruption. However, the issuing of paid stickers was a step towards an organized a n d workable corruption, which became a fact of life a n d thus largely ignored as 'corruption' b u t paid as o n e of the many penalties of trading. Although that incident reflected life in the 1970s in H o n g Kong these forms of extortion continue across the Asian continent in petty ways — like officials d e m a n d i n g a fee for each sheet of information given, or for each sheet of p a p e r constituting an official application form w h e n b o t h are declared by h i g h e r authorities to be free to applicants. In many ways this may be cured by giving all in the hierarchy a d e c e n t salary — as is the case in Singapore. A type of disorganized corruption is also described by A. Margariti (1979) in an immigrant area of New York in the early part of the 20th century. H e emigrated from s o u t h e r n Italy soon after the e n d of the first World War a n d offers examples from the e n t e r t a i n m e n t industry, mainly of the coffee bars in New York frequented by Italian immigrants. T h e coffee bar in the Italian a n d French tradition is the social m e e t i n g point for friends, a n d is the equivalent of the p u b tradition in the English speaking countries. It may be worth noting that the social meeting point for the Chinese is the restaurant, a n d that many restaurants often provide e n t e r t a i n m e n t facilities as the evening draws on. Margariti describes how the owners of coffee bars, after having paid the dues to o n e gang, would be a p p r o a c h e d by a n o t h e r gang for m o r e protection money. If the owners refused to pay the rival gang, b o m b s would be planted in the coffee bar c o n c e r n e d . Such b o m b s would n o t kill customers since they would be exploded after closing time. However, the damage to the coffee bar would be clearly visible a n d customers got the i n t e n d e d message that the particular coffee bar should n o t be frequented. Margariti's observations suggest that disorganized corruption occurs when there is a lack of clear authority. H e goes o n to describe the gang warfare that resulted from the disputed areas of control. Finally, when o n e

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gang firmly established itself, businesses could operate a n d the area would b e c o m e relatively peacefully. T h e r e is also a type of corruption that is prevalent in single, oneoff projects, usually infrastructure projects. This type of corruption c a n n o t be described as disorganized, b u t is very o p e n a n d rapacious a n d tends to be prevalent in developing countries. Italy has h a d the so-called p r o b l e m of the "Mezzogiorno" probably since its unification. T h e Italian G o v e r n m e n t p o u r e d m o n e y into southern Italy for many decades without any major economic benefits. H e r e the problem is n o t o n e of disorganized corruption, b u t o n e where dues must be paid at many levels a n d the funds remaining will n o t be sufficient for delivery of the project at the quality specified. Poorly constructed roads, for example, will get washed away d u r i n g the next heavy winter rains, a n d so the entire project is in fact never delivered. Examples of this extensive corruption that diminishes the original capital to a level where the project c a n n o t be delivered as p l a n n e d are also prevalent in Asia, particularly in g o v e r n m e n t projects in less developed areas. O r m o r e insidiously the dues extracted are n o t too onerous; the project looks to be complete, b u t will never p r o d u c e its economic payback, as its b a c k g r o u n d overheads were too costly. We are suggesting h e r e a project efficiently may be costed at 100 units b u t has cause to loose 20 units in bribes, thus the 80 remaining are used to build the project a n d take it to completion. Later, the project must r u n at efficiency or yield far beyond its design parameters to repay a debt calculated on the original 100 units b u t now derived from a project with the characteristics of o n e of size 80. So the project, or inwards investment, fails b o t h at its c o m m e n c e m e n t a n d in its eventual yield to the community. H o n g Kong is now classified as a newly industrialized economy a n d corruption has taken o n a m o r e sophisticated image. For example, competitive bidding for projects has generated a n o t h e r form of corruption, if it can be called corruption. It is well known that many contractors in H o n g Kong's construction industry m a k e original bids that are deliberately set at well below cost in o r d e r to secure projects. As projects progress, they will then look for legal

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loopholes, for example, unusual geology in the foundation works, to increase payments. This practice can also p r o d u c e output, which is below specification, because of e x p e n d i t u r e being necessarily r e d u c e d d u e to a throttling of the project cash flows. This has led to some particularly b a d a n d dangerous cases of short piling — the foundations do n o t go to the depth specified to support the buildings. If these practices are n o t detected t h r o u g h vigilant inspection the company can save costs a n d possibly make the project profitable. Combating this type of corruption requires the authorities to scrutinize bids a n d n o t necessarily award the project to the lowest bidder. However, this may in turn generate claims of favoritism from those holding financial strings, a n d from the general public who only see half the story. A good example of well-organized corruption in m o d e r n H o n g Kong can be found in the e n t e r t a i n m e n t industry. It is said that o n e group, a so-called triad society, has such strong control that w h e n a new establishment opens, the g r o u p will place o n e of its m e m b e r s in it to work as a full time staff member. This m e m b e r can in fact m a k e valuable contributions to the r u n n i n g of the establishment, providing valuable advice in dealing with customers or in p r e p a r i n g accounts. H e r e the corrupt organization in fact works very m u c h like the owner of a franchise, offering valuable advice to the franchisee; in m u c h the same way as the McDonalds c h a i n of franchised r e s t a u r a n t s . H e r e it is t h e n a t u r e of t h e business itself that is off limits; the corrupt organization "overseeing" the business is able to m a k e positive contributions to the r u n n i n g of the business. In fact they are most likely legitimizing their o t h e r illicit cash flows — as we may say, that are "laundering" their dirty money.

Concluding Comments T h e previous discussion first a t t e m p t e d to explore, in a qualitative sense, w h e t h e r Asian cultural values are m o r e p r o n e to corruption t h a n others. T h e general cultural descriptors used, particularly in connection with Chinese culture, such as g r o u p oriented, concern

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saving 'face', a n d harmony, a n d so d o n o t necessarily imply any a priori tendencies towards corruption. T h e author's experience of over 25 years in an educational institution in H o n g Kong, while difficult, to summarize precisely, suggests t h a t Oscar Wilde's observation of t h e existence of a protective spirit in Asian culture is right. This spirit leads a lack of openness, an observance of a strict hierarchy a n d a decision making process that appears to mainly serve those in power. Departments in publicly funded bodies seem to be r u n by the a p p o i n t e d Heads as if they are small private organizations. In the public sector there are many publicly listed small companies, especially in the property sector in H o n g Kong, which are controlled by Chinese families, typically owning from 30% to 60% of the issued capital. They often trade at a very large discount against their n e t asset values, a n d the majority shareholder is quite happy to accept the very low market valuation. Low valuation saves death duty fees should it be necessary to transfer ownership to a n o t h e r m e m b e r of the family. H e r e too o n e feels that a protective spirit blinds the major shareholder to the fact that there are minority interests in the company, a n d the major shareholder c a n n o t fully distinguish the difference between ownership a n d control. T h e concept of a division between ownership a n d control is a sophisticated o n e , a n d o n e that c a n n o t be easily u n d e r s t o o d in rural or agrarian societies — b u t it is evident a n d may be experienced equally in b o t h the public a n d private sectors in H o n g Kong. This general cultural feature of protectiveness, while in itself n o t necessarily leading to corruption, is always o p e n to the accusation of being corrupt. In the context of a rural society such an accusation is easily rejected, b u t in a m o d e r n society consisting of many interlinked organizations a n d sub-organizations the accusation is m o r e difficult to dismiss. Of course, a protective spirit is present to some degree in all cultures, b u t it seems to be readily observable in Asia, especially by persons with a Western cultural background, such as the author. H o n g Kong established an i n d e p e n d e n t commission against corruption (ICAC) in 1974 u n d e r the t h e n Colonial Governor, Sir

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Murray MacLehose. This commission is regarded as a significant step in H o n g Kong's economic development, helping it move from a d e v e l o p i n g e c o n o m y i n t o a newly i n d u s t r i a l i z e d e c o n o m y . At the time of the formation of the ICAC, it was t h o u g h t essential that its lines of responsibility b e separate from any government d e p a r t m e n t a n d the Police. Corruption was very prevalent a n d very visible at that time, a n d it was fostered by an inability of the government to cope with the services required by a fast growing population that also included daily arrivals of many refugees from Mainland China. T h e history section of the ICAC web page ( h t t p : / / www.icac.org.hk) gives a vivid description of the extent a n d nature of corruption at that p o i n t in time. T h e p r o b l e m was very serious, n o t only in the private sector, b u t also in the public sector. Examples in the public sector included firemen asking for "water money" before they would turn o n the hoses; money was also required before firemen would turn off the hoses, since excessive water could damage products a n d parts stored in industrial buildings. If asked, a fireman at that time may have replied insightfully that many fires were deliberately started by owners of small businesses to collect insurance claims d u r i n g slow economic conditions! Corruption was also very prevalent in the Police Force. A protected witness used the colorful analogy of the corruption bus to describe the extent of corruption in the Police Force. H e suggested that there were three choices available: to ' r u n alongside' the corruption bus knowing full well what is going on, to 'throw oneself in front of it', or j u m p o n it'. T h e ICAC has h a d considerable success over the years, resulting in many high profile convictions. Even so, most authorities will admit that some form of sophisticated corruption still exists in H o n g Kong, b u t now the vast majority of projects a n d government services are delivered o n time a n d at the specified quality level. T h e interesting question is w h e t h e r o t h e r developed a n d developing countries can learn from H o n g Kong's experience with its ICAC. W h e n the ICAC was first set u p , H o n g Kong was u n d e r colonial rule a n d it was able to recruit many highly paid expatriate officers. T h e expatriate officers, many of w h o m were n o t able to speak Cantonese to any significant degree, were well shielded from

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the local culture, a n d thus they were able to maintain independence, a n d an "at arms length" relation with the community that they h a d to investigate. T h e ICAC is now well established a n d functioning effectively a n d most of its officers are local Chinese. Elsewhere, if sufficient i n d e p e n d e n c e can be maintained between an ICAC-like body a n d o t h e r government departments, it should be possible to establish an organization such as the ICAC that can operate effectively in a developing country. T h e State of New South Wales, Australia, while n o t an example in a developing country, set u p its own ICAC in 1988. But many developing countries in Asia may n o t be able to provide the firm central government support that a body such as H o n g Kong's ICAC needs to have in o r d e r to be able operate effectively. After the collapse of the Soviet U n i o n in the late 1980's, a very noticeable increase in c o r r u p t i o n has taken root in its former m e m b e r countries, particular in Russia itself. Although corruption may have b e e n n o less prevalent when the countries were u n d e r the strong central control of the communist party, now the corruption may have be better organized a n d / o r well disguised. At the point when communism collapsed, there was the interesting question as to whether the countries involved could make the transition to Western-style democracies quickly, thus avoiding that early stage of disorganized corruption that many developing countries appear to go t h r o u g h . It seems that this was n o t possible, a n d that corruption too may have a certain course to run, a n d a certain role to play, in the transition to industrialization a n d economic development. T h e West would like to see China move towards a m o r e democratic political structure, a n d is h o p i n g that economic improvements will change the political e n v i r o n m e n t in that direction, leading to the eventual dismantling of c o m m u n i s m . This too is an o p e n question; economic improvements so far have n o t r e d u c e d the influence of the C o m m u n i s t party. T h e Party conducts regular purges of c o r r u p t officials, a n d acknowledges that corruption is a major o n obstacle to economic development. However, w h e t h e r such purges are simply a means of installing a n o t h e r g r o u p of corrupt officials or w h e t h e r it is real progress is also an o p e n question.

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This chapter has a t t e m p t e d to explore links between corruption a n d the level of industrialization or economic development. H e r e many examples seem to exist which a p p e a r to support the existence of some relationship. A form of disorganized corruption was discussed with examples that seem to occur mainly in the early stages of economic development. Corruption will b e c o m e m o r e organized a n d possibly m o r e efficient when a clear authority is established or when the rule of law is m o r e strongly enforced. T h e clear authority may simply be a strong central government; how this g o v e r n m e n t is established may n o t be important, a n d may even be an authoritarian regime such as the Communist party in China. To conclude, a business may b e able to tolerate a degree of corruption if the "story" ends once fees are paid. T h e business can incorporate such fees in the unit p r o d u c t cost a n d make a business decision as to w h e t h e r the p r o d u c t or service has a m a r k e t at such a cost level. Disorganized corruption brings uncertainty in costs a n d the viability of the business c a n n o t ever be assessed, making national economic progress difficult a n d slow. To learn this is o n e step towards progress.

Note T h e views expressed in the chapter are n o t necessarily those of the author's employer, T h e University of H o n g Kong, which was kind e n o u g h to pay his salary while c o n d u c t i n g the research that lead to this chapter.

References De Madariage S (1963) The Unity and Diversity of Europe. In: Scott AF (ed.), Topics and Opinions. London, Macmillian: 3-8 Evans WA & Sculli D (1981) A comparison of managerial traits in Hong Kong and the USA. Journal of Occupational Psychology, 54: 183-186. Ghiselli EE (1971) Explorations in Managerial Talent. Pacific Palisades, CA, Goodyear Publishing Company.

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Ho YF (1976) On the concept of face. American Journal of Sociology, 81: 867-884. Hofstede G (1991) Cultures and Organizations: Software of the Mind. Maidenhead, McGraw-Hill. Luo Y (1995) Guanxi: Principles philosophies and implications. Human Systems Management, 16: 43-51. Luo Y (2000) Guanxi in Business. Singapore, World Business. Lin Y (1955) The Wisdom of China. Bombay, Jaico Publishing House. Margariti A (1979) America! America! (in Italian). Casalveline Scalo (SA), Galzerano Editore. Okumura S (1985) Five Misunderstandings About Technology. Kenshu, Publication of the associations for technical scholarships. Tokyo, Japan, 97: 25-29 Wilde O (1948) The Works of Oscar Wilde. London and Glasgow, Collins: 1105. Wong YH & Chan RYK (1999) Relationship marketing in China: Guanxi, favoritism and adaptation. Journal of Business 22: 107-118.

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Chapter 9

The Economy of Seepage and Leakage in Asia: The Most Dangerous Issue

Gilbert Etienne

Introduction In this chapter we will engage in a form of 'scene setting' across a swathe of south east Asian countries. We will concentrate u p o n the problems associated with the diversion of funds — a form of corruption we must admit that is also practiced in o t h e r parts of the world. But here, as well as in o t h e r p o o r regions, its inequity has grave effects. Pakistan, India, Bangladesh, Vietnam, Indonesia, China a n d o t h e r Asian countries face very serious challenges in infrastructure, agriculture, in their state owned enterprises a n d with respect to environmental m a n a g e m e n t . N o matter the increase in private investments, local or from outside, the situation could get worse in the next decade or so d u e to a lack of public finance. Such a shortage is b o u n d to slow down their future growth, particularly in China, Indonesia a n d Vietnam, a n d prevent an acceleration of growth across South Asia. O n e major remedy would be to reduce the seepage and leakage of public money that has achieved such e n o r m o u s proportions, that it looks to be the most critical issue for the coming decades.

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There is, at last, a healthy reaction against corruption. The World Bank, the IMF, the OECD, and several governments of rich and poor countries are now striving to curb this rising disease. However, what I call the economy of seepage and leakage goes beyond corruption. I see the problem as having three tiers: • misallocation of resources in general which are the result of government policies or weak administration: observable in the form of excessive subsidies, real estate speculation, wasteful expenditure, neglect of most urgent investments in infrastructure and lack of public operations and maintenance expenditures. • then come losses of revenue: as tax fraud, smuggling, poor enforcement or collection of fees and taxes; • finally, corruption that includes a variety of malpractices. All these factors severely curtail public investment and recurrent expenditure that should be devoted to productive tasks at the time when these public funds are badly needed and in short supply. In this chapter we are not dealing specifically with petty corruption, so common in our four countries in focus, and in many others. We know this creates a lot of resentment among the people, poor or rich because of the relative inequity. Too often they have to give a bribe to obtain what they are entitled to. On the other hand, the same people(!) or others offer a baksheesh to officials to receive illegal favors or advantages. Such shortcomings are no doubt regrettable, but they do not have such a damaging effect on the economy and social progress as the cases referred to below. In spite of sound trends aimed at a reduction of the scale of government activities in industry and services, the State has still a major role to play as agent of development, no matter the rightist dogmas which have replaced, since the 1980's, the leftist dogmas, although the latter are reappearing in the polemics about globalization in the North-South context. While this chapter is focused upon Asia, it seems likely that some of the following observations apply to Latin America and Africa. According to the OECD estimates: "Every year some eighty billion US$ is paid out worldwide in the form of bribes" and it may

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be the "tip of the iceberg". Further, these data are confined to corruption only (OECD Observer, No. 216, March 1999). With reference to Latin America "a rash of scandals is testimony to the greater scrutiny r a t h e r than their being m o r e widespread sleaze. But there are many m o r e things governments could d o to clean u p " (The Economist, 16-6-01). It is beyond my ability to survey the whole of Asia, that is why I have selected the countries which I am most familiar with a n d which I have visited repeatedly between 1952 a n d 2000. Such countries offer also m o r e information o n leakage than Vietnam, I n d o n e s i a , a n d T h a i l a n d . In C h i n a , g o v e r n m e n t a u d i t teams are frequently sent to check the accounts of SOE (State Owned. Enterprises); O t h e r controls concern their administrative units. As a consequence, many reports are released to the Chinese press. In South Asia, enquiry committees, official reports, statements by politicians a n d officials frequently refer to leakage a n d seepage, as well as corruption. They too are r e p o r t e d in the press, while newspapers themselves d e n o u n c e malpractices. Chinese economists, I n d i a n , Pakistani, Bangladeshi scholars c o m e o u t with their own estimates in books a n d articles. A n d international publications, particularly from the World Bank a n d the Asian Development Bank, or NGOs like Transparency International are also quite outspoken. Some estimates, o n black market, smuggling, illegal taxes are b o u n d to be quite rough, unlike audit reports on specific cases. There may be also some overlapping between the various data. However, it seems that the data given below u n d e r l i n e the m a g n i t u d e of the problems a n d the diversity of losses for governments. These estimates emphasize also the changes that have occurred in a n u m b e r of developing countries — t h o u g h n o t in all — d u r i n g the past fifty years. In the early years, the lack of local capital availability was o n e of the major issues. Today, n o d o u b t m o r e capital funding t h r o u g h savings a n d from public aid or from private foreign investments is n e e d e d , b u t additional capital could be t a p p e d by r e d u c i n g leakage a n d seepage. A considerable fraction of the investment capital is lost at the m o m e n t a n d could be r e t u r n e d to

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productive use increasing initial investment in projects, a n d ultimately r e d u c i n g the b u r d e n o n investment performance. T h e latter is simply because 100% of the investment would be p u t to the project, its forecast r e t u r n on investment may well be achieved. Whereas if only 7 5 - 8 0 % of the initial investment is placed, that cash flow has to work supremely h a r d to make any breakeven, missing as it does some 2 0 - 2 5 % of initial investment that has disappeared t h o u g h 'leakage'. Another difference vis a vis the early phases of development refers to the growing complaint about public funds allocations. Operations a n d Maintenance costs (O&M), r e c u r r e n t expenditures a n d project lifetime costs have b e c o m e increasingly important. They have to be p r o p e r l y b a l a n c e d with investments in new projects: which is something n o t often d o n e , so that O&M expenditures are neglected or even cut in favor of new capital ventures. O n e h i d d e n reason is that new projects may offer m o r e opportunities for baksheesh a n d p a t r o n a g e by local politicians than O&M expenditures, while the latter ironically in a n u m b e r of cases, could bring m o r e a n d quicker benefits. We will illustrate below the e n o r m o u s levels, a n d extent, of the 'leakages':

China • •

•

•

smuggling 12 billion US$ in 1998; e.g. smuggling in the X i a m e n case reached as m u c h as 6.5 $b by 2000; tax evasion 30 $b in 1993; illegal electrical c o n n e c t i o n cost 804 $m in that year; a n d u n p a i d construction taxes rose to 2 $b by 1997; illegal taxes raised by local authorities, 800 $m to 1.4 $b p e r year, part of t h e m e n d i n g in private pockets; a recent estimate gives the amazingly high figure of 13 $b in 1999; bad debts of State owned enterprises, a r o u n d 200 $b in 1998; diversion of funds from grain d e p a r t m e n t s for "illegal actions" 6.7 $b between 1992 a n d 1998;

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"false accounts" in 68.46% of large scale SOE audited in 2000, in most cases t h r o u g h deliberate diversion of funds; diversion of State b u d g e t funds to set u p private luxury flats — 2 $b in 1997; expenditures in official banquets, nearly 15 $b in 1993; illegal gains by Hebei province cadres, reaching 3.6 $b by 1999

References: Beijing Information, 9-11-98; China Business Review, May-June 1994; China Daily, 23-3-98, 7-5-98, 22-12-98, 6-4-99, 28-6-99, 11-4-2001; The Economist, 12-8-00; Le Monde, 4-10-00; Far Eastern Economic Review, 31-5-01.

India •

under-invoicing of exports a n d over-invoicing of imports to a n d from USA, about 2 to 4 $b in 1994; • illegal assets abroad 40 $b • tax evasion at a b o u t 30 $b per year; • subsidies, often of questionable value, equivalent to 15% of GDP in 1997; • cumulative financial losses of State Electricity Boards were 2.8 $b b y l 9 9 8 d u e to the diversion of funds allocated for electric networks m a i n t e n a n c e or for irrigation works to private pockets, including free or very c h e a p electricity supply to farmers for opportunistic reasons; • further losses in electric power supply, 40 to 50% of total output, half of it in pilfering a n d o t h e r malpractices estimated 4 $b p e r year • n o n recovery of t e l e p h o n e bills, 750 $m in 1995;

All in all, it is estimated that the Indian GDP could be increased by 1.5%, a n d FDI by 12% if corruption could be checked References: Times of India, 30-1-97; The Hindu, 13-2-97; Ministry of Finance on Subsidies, 1997; Economic Survey, 1996-97; World Bank Report on Power, 1998; Economic Times, 6-9-99; Business Standard, 21-1-00; Nau Bharat Times, 4-4-01.

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Pakistan • • • • • •

•

SOE losses reaching 2 $b by 2000; default loans to the banks 4.7 $b cumulative 2000; tax evasion 3 $b size of the black economy: 30 to 40 $b equivalent to o n e half or m o r e of GDP; losses d u e to corruption 2.5 to 5 $b per year; power thefts from Karachi electric supply corporation equivalent to 3 5 % of t h e power g e n e r a t e d — t h r o u g h 450,000 illegal connections in Karachi a n d t h r o u g h 46,000 defective meters; smuggling 3 $b per year.

In addition, as a consequence of the continuing Afghan wars, narcotics a n d arms traffic contribute to the flows of black money References: Dawn, 29-8-96, 10-10-96, 8-4-99, 26-5-99, 24-3-01; Human Development Report on South Asia, 1999.

Bangladesh • • • • •

losses d u e to corruption may b e 2 to 3 % of GDP p e r year; a n d 30% of funds devoted to development "disappear"; default loans of banks, 3 billion $, cumulative 2000 40% of total electricity c o n s u m e d p e r year is n o t paid for; Titas (gas SOE) have cumulative losses d u e to p o o r m a n a g e m e n t , thefts, n o n payment of bills of 200 $m t h r o u g h 1994 to 1997 smuggling is quite p r o m i n e n t , b u t n o estimates are available.

References: World Bank, Bangladesh key challenges for the next millennium, Washington D.C., 1999; Daily Star, 11-11-98; Economist Intelligence Unit, 2000, 4 th quarter; The Economist, 12-2-00. We d o n o t have comparative data o n o t h e r Asian countries b u t seepage a n d leakage are considerable. According to the Asian Development Bank, a n n u a l r e p o r t 1998, "corruption (alone) has a d d e d 2 0 - 1 0 0 % to the cost of p r o c u r i n g g o v e r n m e n t s goods

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a n d services in several countries". Following the 1998 r e p o r t of Transparency International, Vietnam a n d Indonesia seem to suffer from m o r e c o r r u p t i o n t h a n the three countries q u o t e d above; Thailand a n d the Philippines are at a r a t h e r similar level. Over many years Chinese leaders in official statements a n d econo-mists in their articles complain a b o u t leakage a n d seepage. T h e Prime minister Zhu Rongji is particularly active, making personal enquiries a n d firing dubious officials. President Jiang Zemin has often expressed his concern: "The fight against corruption has b e c o m e vital for the very existence of the State a n d the Party" (Beijing Information, 6-10-97). O n J u n e 2 n d 2001 a top official research g r o u p p r o d u c e d a 308-page r e p o r t for the Central Committee that is highly critical of the present situation (China Investigation Report 2000-2001 — Studies about contradictions among people under new conditions). It refers to growing inequalities, social tensions a n d disturbances, corruption a n d o t h e r abuses by c o m m u n i s t cadres. In spite of these efforts, a n d the imposition of severe p u n i s h m e n t (often a capital penalty), such defects do n o t disappear. T h e c o n c e r n o n leakage a n d corruption is n o less striking in India. C o n n e c t e d with these aspects comes the "criminalization of politics a n d politicization of crime" n o t e d by PR. Chari (The Hindu, 20-11-2000). According to the Indian elections commission, at least 40 m e m b e r s of Parliament a n d 700 m e m b e r s of State Assemblies face criminal charges. T h e corruption scandal was exposed o n Intern e t sites by an Indian company in March 2001 where an article showed that a n u m b e r of politicians, senior civil, a n d military officers h a d taken bribes: this shook t h e country. T h e Prime minister Vajpayee talked of the "spreading of a cancer" (India Today, 2-4-01), while a p r o m i n e n t m e m b e r of the Congress Party admitted that "the system is thoroughly corrupt" (The Economist, 24-4-01). T h e judiciary has b e c o m e m o r e active so that some i m p o r t a n t political leaders have b e e n sentenced to jail. T h e trouble is that the cases take a very long time to bring to the courts, a n d t h e n all kinds of appeals follow.

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In Pakistan, the fight against corruption a n d leakage has b e c o m e m o r e active u n d e r General Musharraf since 1999, so that people tend to be m o r e careful. A n u m b e r of politicians, some senior officials, a n d an ex-admiral have b e e n arrested. Some default loans obtained by p r o m i n e n t personalities have at last b e e n repaid. In Bangladesh, such topics are n o less openly discussed in the press. T h e r e p o r t o n the Five-Year Plan 1997-2002 devotes several pages to various types of malpractices (Dhaka, Planning Commission, 1998: 220-225). Yet it seems that the judiciary is less active h e r e than in the o t h e r countries. Also o n e sees relatively fewer details o n leakage cases. To sum u p , in these four countries, o n e comes across growing efforts, first to expose publicly abuses, wastes a n d o t h e r malpractices a n d second, to reduce them. O n e must however admit that m u c h remains still to be d o n e . New cases keep on emerging although leakage a n d seepage have b e e n increasingly d e n o u n c e d for the last ten years or so. Some of the most glaring cases of seepage and leakage are found in infrastructure. It is not u n c o m m o n to find that corruption, wrong allocations of public money, high subsidies, lack of m a i n t e n a n c e e x p e n d i t u r e s , weak m a n a g e m e n t a n d p o o r tax collection, pilfering (in the case of electricity) are interconnected.

The N e e d for More Public Funds T h e n e e d for m o r e public expenditure runs into h u n d r e d s of billions US$ for the next ten years or so, particularly in infrastructure. A few years ago, several Asian governments h a d p u t m u c h h o p e o n private, foreign or local, investments along formulas such as B O T (build-operate-transfer) or B O O (build-operate-own) for electricity a n d transports. Experience has shown that the managers of FDI (foreign direct investments) are reluctant to enter such costly a n d risky projects, so that only a few projects are now being implemented u n d e r these rules. That reluctance is m u c h greater now, following the east Asian financial crises a n d with the continuing political difficulties of China, Vietnam, Myanmar, India, a n d Pakistan.

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As a result most Asian countries c a n n o t escape their n e e d for massive new domestically financed public investments, a n d they face considerable increases in their c u r r e n t public expenditures for maintenance a n d operations — wholly insufficient over many recent years. T h e levels in investment in the ' s t a n d a r d ' infrastructure projects — u p o n electricity (and o t h e r fuels), roads, telephones a n d water (both clean a n d waste) have b e e n sadly neglected. T h e gap between supply a n d d e m a n d of electricity has already led to billions $ of losses for the economies c o n c e r n e d as we have seen above. These losses are continuing in India a n d Bangladesh, while in C h i n a the gap has b e e n r e d u c e d with t h e slowdown of the economy, although many difficulties remain, d u e to insufficient O&M funds. According to the World Bank's estimates, in China, its infrastructure (mostly electricity, transport, telecommunications) would require 600 to 700 h u n d r e d billion $ for the period 2001-2010 (see Financial Times, 19-3-96). For India 315 to 340 billion $ for the period 1996-2006 for infrastructure without taking into account the railways (The India Infrastructure Report, New Delhi, ministry of finance, 1996). For Pakistan there are less comprehensive studies. Hydro-electricity a n d mostly m u l t i p u r p o s e projects i n c l u d i n g reservoirs for irrigation would require 32 billion $ until 2015. In Bangladesh, Vision 2020, (Dhaka world bank a n d Bangladesh center for advanced studies, 1998), suggests that 300 billion $ are n e e d e d as investments over the next twenty-five years to reach an average growth rate of 7 to 8% per year, versus 5% in the late 1990s. It is almost impossible to gather comprehensive data on the cost of better O&M (Operations a n d Maintenance) expenditures for infrastructure. What is clear however is the m a g n i t u d e of the task. Over the past fifty years, electric supply a n d networks have grown very fast, from a very low level. While there were some ten — twenty thousand villages electrified in all these countries, today the bulk of villages in China, India a n d Pakistan are reached by electricity. Now all small towns enjoy electricity — a n d this e q u i p m e n t has to be maintained. We must n o t forget that while capital funds are n e e d e d for O&M, intellectual capital needs to be

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built u p in the form of suitable education a n d training of local p e o p l e . S u c h t r a i n i n g , c o u p l e d with a d e q u a t e r e m u n e r a t i o n packages, might entice t h e m to remain in the countryside r a t h e r than look 'for the golden pavements' of big towns. N o less progress has occurred in roads: improvements of national highways, construction of h u n d r e d s of thousands of kilometers of secondary roads to replace p o o r fair-weather non-metal roads. Originally electricity a n d roads, known to be i m p o r t a n t factors of development, were stumbling blocks to further progress, especially in South Asia. Aging electric e q u i p m e n t (power stations, transmission lines a n d distribution) resulted in too many breakdowns a n d low voltage [brown-outs] affected factories a n d the electric tube-wells n e e d e d for agriculture. Deteriorating roads delayed traffic a n d m a d e it m o r e costly; n o matter if we focus o n bullock carts, trucks or tractors. T h e n , if we review the parts of India where national highways are in good condition, they have b e c o m e so congested that trucks make a b o u t only about 200 km p e r day, versus 500-600 in Western Europe, imposing considerable secondary losses u p o n the economy. As to railways, they are in particularly p o o r shape, particularly in South Asia, although the situation has improved in China in recent years. T h e Chinese government in conj u n c t i o n with its South East neighbors plans to c o n n e c t Singapore, by rail, right t h r o u g h the Beijing. O t h e r topics less discussed concern agriculture which still plays a major role in Asia, except in J a p a n , South Korea a n d Taiwan. Generally it contributes 2 0 - 3 0 % of GDP, a n d employs 50 to 6 0 - 7 0 % of the active population, except in China where it seems recently to have fallen below 50%. T h e m a i n t e n a n c e of hydraulic works has b e e n very p o o r over the past fifty years a n d new investments n e e d e d to p r o m o t e further irrigation, flood control a n d drainage: these are slow to come. In China, about two thirds of the 84,000 reservoirs a n d of 246,000 km of dykes n e e d i m p o r t a n t repair a n d rehabilitation since many major projects were n o t properly designed a n d were badly built in Mao Zedong's days. In particular, the n o r t h e r n part of China suffers from an acute lack of water for irrigation, drinking a n d its industries. T h e whole area with 6 5 % of arable land enjoys

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only 20% of all water resources a n d its water deficit, estimated at 30 billion cu.m. in 2000, could reach 50 billion in 2020 (China Business Review, March —April 1998). That is one reason why the government intends to start a h u g e project to divert part of the excess water of the Yangzi river to the N o r t h e r n Plain. T h e cost could a m o u n t to 18 $b (ChinaDaily, 19-11-2000). Smaller projects are n e e d e d in other parts of the country in o r d e r to reduce their losses in irrigation volumes, which can reach 60% of the water released. This will e x p a n d the irrigated area — a n d is quite an analogous concept to the increase in efficiency of recovered financial funds if they are p u t to productive use, rather than b e i n g lost via 'leakage'. In India a n d Pakistan the wide irrigation canals systems inherited from the British a n d e x p a n d e d after 1947 cover respectively 20 to 25 million h a a n d 14 million $. O&M expenditures have b e e n wholly insufficient, a n d part of the money allotted ends u p in various pockets. A n u m b e r of works have deteriorated so m u c h that they should be rebuilt: only 38 to 40% of the theoretically available water reaches the plants. Estimates of the cost of rehabilitation are lacking, b u t in b o t h countries they must be expected to r u n into billions of dollars. After this are the new major works n e e d e d to find water wherever the area is n o t fit for m i n o r works such as tube wells. However, India (more so than Pakistan) suffers severely from a shortage of power to s u p p o r t the m i n o r irrigation that d e p e n d s on electric tube wells. More flood control a n d drainage of land will aid land that suffers from excess water even u n d e r n o r m a l rainstorms. These are major issues in the eastern plains of India a n d Bangladesh, b u t progress o n flood control projects is slow in b o t h cases. However, projects to alleviate p o o r conditions could be p u t in place to r e d u c e water logging a n d a salinity problem, especially in Pakistan a n d India — b u t again, progress is slow. Understandably of course from the viewpoint of outside funding agencies, as they consider the negative effects of economic leakage All these factors c o m b i n e d explain why the expansion of basic crops (which can be considered to be major, vital crops) has slowed down practically all over Asia. Of course this is aggravated when the

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weather, with its d r o u g h t or floods, is unkind; b u t funding difficulties exacerbates it. O n the o t h e r h a n d private investments are rising in rural India a n d there is also m u c h scope in Pakistan. Farmers tend to p r o m o t e richer crops than cereals, to develop animal husbandry, orchards, vegetables, a n d fishponds. A clever farmer, if h e gets electricity, can m a n a g e by himself to start an o r c h a r d with a drip system, b u t left to himself, h e c a n n o t rehabilitate thousands of k m of irrigation canals or dykes. In o t h e r words the market a n d private investments c a n n o t replace a larger c o m m i t m e n t by the State: this is n e e d e d in all Asian countries. O n e should also m e n t i o n the e n o r m o u s needs for m o r e public funds, in addition to private ones, to stop the deterioration of e n v i r o n m e n t a n d improve it. In China, "the economic cost of air a n d water pollution has b e e n estimated to 3 - 8 % of GDP p e r year" (World Bank, China 2020, Washington DC, 1997). T h e situation is quite comparable in India a n d Pakistan with costs equivalent to 4 - 6 % of GDP. Public funds are n o less lacking in the fields of education (which we alluded to above), a n d health m a n a g e m e n t . In South Asia, the rate of illiteracy is still high, in India 3 5 % , Pakistan a n d Bangladesh a r o u n d 5 5 % , a n d public health remains weak across the regions. In China, the rate of illiteracy amounts to only 10%, b u t faster progress is badly n e e d e d in higher education. As to the whole health system, which was reasonably good in Mao Zedong's days, it has deteriorated. W h e r e can o n e find public money? Foreign aid a n d FDI c a n n o t cope with such challenges; h e n c e there are needs to strengthen local finance, b a n k i n g a n d taxation. It is n o less crucial to curb the vast losses of SOE in industries a n d banking — with their physical loses d u e to inefficiency a n d ineffectiveness of m a n a g e m e n t practices, as well as fiscal inefficiency — d u e in part to corruption. T h e reduction of leakage and seepage would help replenish the exc h e q u e r a n d their raw material stocks. Basic defects such as p o o r m a n a g e m e n t , a plethora of personnel, political interference, lack of a u t o n o m y . . . have b e e n well identified in all four countries for twenty years or m o r e . . . yet remedies are slow to come. At

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the m o m e n t , the Chinese are the most active in addressing reforms, b u t even there m u c h remains to be d o n e . Naturally, a n d ultimately, we must acknowledge the very tight financial situation in Pakistan, Bangladesh, a n d in o t h e r countries like Indonesia a n d Vietnam, which curtails public funds available for development.

The Other Side of the Coin, and "Good Governance" T h e latest fad in n o r t h — south debates refers to "good governance" a n d "good corporate governance", which are b o t h closely connected with attempts to reduce leakage a n d seepage, where corruption plays a p r o m i n e n t role. T h e t e n d e n c y of rich c o u n t r i e s is to sermonize — which is questionable. They would be o n a safer g r o u n d if they began by being self-critical. First, a sizeable p a r t of malpractices is n o t the sole responsibility of the developing countries. Their foreign partners, n o t infrequently, are involved. T h a t is why the USA, by 1977, a d o p t e d the foreign corrupt practices act in o r d e r to curb corruption of US companies' employees. More recently, the OECD p u t pressure o n its m e m b e r s to take similar measures. As a start, bribes should n o m o r e be deductible from i n c o m e tax declaration, as it has b e e n the case in most countries until now. T h e r e are several observations that follow these changes of practice: Firstly, o n e sometimes wonders w h e t h e r in the long run, the image of a foreign company refusing to engage into baksheesh might n o t have some commercial value. Besides, is it n o t in the interest of foreigners to deal with countries that enjoy a healthy [transparent] financial situation? O n e must however a d d that such a policy is easier to a d o p t for a large multinational corporation than for a m e d i u m size corporation that relies o n less resources and, as a consequence, can take less risks to lose a contract. O r for a small a n d m e d i u m enterprise (SME) that live 'from h a n d to m o u t h ' staggering from o n e minuscule contract to another, often u n d e r duress from its bigger downstream 'partners'. Second c o m e political factors. N e i t h e r in western countries or J a p a n , n o r in most Asian countries, is the political leadership

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particularly impressive. At the m o m e n t personalities like Zhu Rongji who has thoroughly u n d e r s t o o d the implications of leakage does his utmost to fight against it. But these leaders are n o t so c o m m o n in either rich or p o o r countries. Third, corruption a n d leakage are n o t absent in rich countries, even if they are less widespread — that is why moral arguments a n d righteous indignation d o n o t a p p e a r very relevant coming from the m o u t h of westerners. T h e situation may be seen in practical terms since western countries are in a m u c h less tight financial situation, with m u c h less acute poverty a n d less population pressure than developing countries thus they may lead by [bad] example. They can be seen to afford a certain a m o u n t of waste, losses, a n d corruption. For example, in 1998, the Audit Organization of the E u r o p e a n U n i o n discovered that 4.5 $b h a d b e e n lost t h r o u g h fraud, theft a n d waste (Le Temps, 17-11-99). In Germany, according to the Federal Criminal Office "Corruption now holds a firm place in o u r public administration a n d business life" (quoted in The Economist, 11-12-99). As to France, its economy is doing fairly well, yet in 1999, 30 ex-ministers, over 100 former or present parliamentarians a n d mayors a n d a quarter of present or ex-heads of major corporations were " u n d e r formal investigation over various corruption scandals" (TheEconomist, 5-6-99) a n d the n u m b e r has increased further in t h e past two years, with five ex-ministers in jail or c o n d e m n e d to prison. W h e n the Credit Lyonnais lost 100 billion [French] francs d u e to m i s m a n a g e m e n t a n d dubious practices, the 60 million French people have n o t b e e n affected in their day-to-day life. T h e same can be said of the 400,000 inhabitants of Geneva, when the Cantonal Bank lost, u n d e r questionable circumstances, 1.5 billions US$. Many m o r e examples could be quoted. In Asian or o t h e r developing countries, similar losses curtail growth a n d social progress that prevents a sizeable n u m b e r of people from escaping their acute poverty. But, given the examples above from t h e rich western countries, it is n o t correct for t h e m to sermonize against these practices that are [also] rife in Asia. Closely c o n n e c t e d to the n o r t h — south debate on good govern a n c e is an emphasis o n democracy as a prerequisite to economic

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a n d social progress. According to the new m a n t r a this should lead to a substantial fall in corruption. T h e latter may prove as illusory as the previous o n e , in vogue t h o u g h the 1950s-1960s, whereby it was said the developing countries were n o t ripe for democracy, a n d that was why they n e e d e d a dictatorship or at least a n authoritarian regime. As is well known, many such regimes in latin America, Africa a n d Asia have achieved a very p o o r record in development, a n d have fallen into an acceptance of widespread corruption. Democracy is n o t a panacea either. Both Pakistan, in 1988, a n d Bangladesh in 1991 a d o p t e d a democratic system. In the former growth went down because of very p o o r leadership a n d instability. In the latter, growth rate did improve because of e c o n o m i c reforms which could have b e e n i n t r o d u c e d equally well by an authoritarian regime. In both cases corruption, which was quite widespread before free elections a n d a free press were allowed, has t e n d e d to increase. As to democratic India, corruption c o n t i n u e d to increase since the first alarm bells started ringing in the early 1960s. To sum u p , such a binary debate does n o t look relevant. What matters is n o t the label o n the bottle, or the selection of the system p e r se, b u t its c o n t e n t — which has led, over the past fifty years to a mixed picture of failures or successes u n d e r various political systems.

How to Conclude? Although o n e notices in o u r four countries some progress in the fight against corruption, a lot remains to be d o n e to combat all the forms of leakage a n d seepage. In the immediate future it is to be feared that these effects will remain substantially prevalent. T h a t is why a fast growth (of 8% per year as envisaged in India for the coming Five Year Plan 2002 to 2007) looks very doubtful. T h e growth rate of 5-6% achieved in recent years in India a n d Bangladesh might be sustained — t h o u g h it is n o t entirely predictable. We have to h o p e that India does n o t suffer from very bad monsoons, a n d the latter suffers from major floods a n d / o r cyclones. Pakistan, with a growth of only 4%, (versus 5 to 6% before the 1990s) has seen an increase of poverty, is in such a tight financial position that to move

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to a faster growth may take some considerable time. It is dependent also on an improvement in the overall political situation. In China it is well known that all their statistics often need adjustments: the 7% growth of 2000 could be around 6%, and it may remain so for a number of years, according to the forecasts of two of their best economists —Wang Xiaolu and Fan Gang {ChinaDaily, 12-6-2000) Thus, even assuming the best hypothesis, that is with a sharp fall of leakage and seepage, the defects in infrastructure and other sectors reviewed in this article will need at least ten years to be substantially removed. This means that a reduction of poverty looks doubtful, especially in South Asia, which has a lower level of development than China.

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Chapter 10

Combating Corruption in Southeast Asia

Clay Wescott

Introduction This c h a p t e r will e x a m i n e r e c e n t progress of Cambodia, Laos, Thailand a n d Viet N a m to set u p effective institutions to fight corruption in the public sector, drawing o n governance assessments recently carried out by the Asian Development Bank (ADB). It will make r e c o m m e n d a t i o n s b o t h for improving ongoing efforts at the country level, a n d for j o i n i n g forces at the regional level. Anticorruption efforts in these four countries reveal b o t h similarities a n d differences, making the sub-region interesting for comparative analysis of the causes a n d consequences of different approaches.

Background T h e effort to combat corruption has moved to the center of the d e b a t e a b o u t g o o d governance, e c o n o m i c growth a n d poverty reduction. T h e impetus b e h i n d this move has come from many sources. I n c r e a s i n g flows of aid a n d foreign i n v e s t m e n t have increased the temptations for gatekeepers. T h e e n d of the cold war has r e d u c e d the willingness of d o n o r countries providing aid to

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overlook financial improprieties in light of b r o a d e r geopolitical interests. D o n o r country fatigue has placed increasing pressure u p o n foreign assistance agencies to demonstrate that they are delivering m a x i m u m value for the money. T h e negative example of a handful of "kleptocratic" regimes has u n d e r s c o r e d the d a n g e r of political a n d social collapse if widespread corruption is allowed to fester u n c h e c k e d . A n o t h e r factor is that in an era of increasing trade liberalization, an economic crisis such as occurred in the region in 1997 may be precipitated by pent-up structural weaknesses, including a combination of financial market, corporate a n d governance problems. For y e a r s , g o v e r n a n c e w e a k n e s s e s h a d b e e n e a t i n g away a t t h e foundations of east Asia. Aside from the i n h e r e n t fragility of a m a c r o e c o n o m i c framework increasingly financed by short-term external debt, there was outward tolerance of the deterioration of public/private co-operation into closed circles of influence a n d privilege. Further, there was obliviousness to the m o u n t i n g , a n d largely invisible, economic costs deriving from the lack of transparency a n d accountability a n d the shrugging acceptance of corruption. I n d e e d , there was even a benevolent view of rent-seeking a n d private collusion as necessary lubricants for the system. T h e weaknesses were n o t limited to the g o v e r n m e n t or to lax supervision of the banking system, b u t included grave problems of corporate governance in the private sector itself, stemming from a lack of transparency a n d absence of strong competitive checks a n d balances. Citizens in the region have served notice that they are n o longer willing to tolerate such gross abuses of the public trust for private gain. T h e liberalization of the press has enabled journalists to write m o r e freely a b o u t official indiscretions. Improvements in education a n d increased information flow between countries have m a d e their public m o r e aware of anticorruption efforts in o t h e r countries a n d less willing to tolerate systematic abuses at h o m e . T h e rise of new global N o n g o v e r n m e n t Organizations (NGOs) dedicated to fighting corruption has h e l p e d to bring a n d keep the issue in the spotlight. Foreign investors are also favoring countries that m a k e concrete progress in their structural reforms.

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The Countries in Focus T h e four southeastern Asian countries covered in this chapter (namely — Cambodia, Laos, Thailand a n d Viet Nam) have expressed concern at the highest level a b o u t the n e e d to combat corruption. These countries make u p p a r t of the Greater Mekong sub-region. With the onset of peace in the 1990s, there have b e e n rapid changes a n d improvements in living standards a n d conditions, although setbacks have occurred since 1997. For instance, the Mekong countries are gradually shifting from subsistence farming to m o r e diversified economies, a n d to m o r e open, marketbased systems. In parallel with this are the growing commercial relations a m o n g the Mekong countries in terms of cross-border trade, investment, a n d labor mobility. Moreover, natural resources, particularly hydropower, are beginning to be developed a n d utilized o n a sub-regional basis. However, because of the legacy of conflict in the region, the militaries of the 4 countries are large, a n d in a position to take advantage of their p r o m i n e n t positions. All of these dynamic factors pose major challenges to governance the sub-region. In 1995 the Asian Development Bank (ADB) adopted its governance stance in its Sound Development M a n a g e m e n t policy, which defines governance as "the manner in which power is exercised in the management of a country's social and economic resources for development." T h e policy specifies f o u r c o n d i t i o n s n e c e s s a r y for g o o d g o v e r n a n c e : a c c o u n t a b i l i t y , p a r t i c i p a t i o n , predictability, a n d transparency. Later, ADB's anti-corruption policy was approved in 1998, defining corruption as: "the misuse of public or private office for personal gain." To get an initial view of the challenges in each country, ADB has carried o u t governance assessments. These assess the effectiveness of past assistance from the Bank a n d o t h e r donors, so as to f o r m u l a t e a role for t h e Bank in a d d r e s s i n g future govern a n c e challenges.

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T h e governance assessments are being d o n e collaboratively with the World Bank, the U n i t e d Nations D e v e l o p m e n t P r o g r a m m e (UNDP), a n d o t h e r donors by providing isolated diagnoses so as to avoid duplicating efforts a n d thereby creating confusion in these countries. Both the ADB a n d the World Bank have recently a d o p t e d p e r f o r m a n c e allocation systems for dividing scarce concessional lending resources: in the case of the ADB this is the Asia Developm e n t Fund. This work is going a h e a d despite the difficulties of making comparisons between countries based o n governance. Of the four GMS countries discussed here, three are Asia development fund borrowers: Cambodia, Laos, a n d Viet Nam. As of 2002, the fund's allocations to these countries will take into account their p e r f o r m a n c e o n a n u m b e r of governance indicators. In the assessments of the four Southeast Asian countries, ADB examines the strength of each government's c o m m i t m e n t to good governance, including s o u n d m a c r o e c o n o m i c and financial management, participatory a n d pro-poor economic policies, effective delivery of public services, a n d enforcement of contractual a n d properly rights. Since the p o o r d e p e n d heavily o n basic services in the public sector — such as health clinics, schools, courts a n d police — weak governance affects t h e m the most. T h e ADB's (1999a) recently approved poverty reduction strategy highlights that good governance facilitates participatory pro-poor policies, as well as sound macroeconomic management. Since 1997, it is clear that the best performing regional economies are the ones most successful in carrying o u t structural reforms, including the combating of corruption. T h e People's Republic of China (PRC), for example, has slashed state-owned enterprise a n d civil service employment, forced the military o u t of most businesses, a n d increased g o v e r n m e n t revenues by nearly a half (in terms of percentage of GDP). South Korea has carried o u t drastic reforms in its banking system a n d of its largest companies. Both countries have t o u g h e n e d measures to combat (still serious) corruption. An o u t c o m e of these reforms has b e e n better economic p e r f o r m a n c e t h a n in n e i g h b o r i n g countries.

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Attempts are also underway in the four southeast Asian countries to combat corruption by strengthening public administration, expenditure management, and by the enforcement of a sound legal framework at the national level. To effectively fight corruption, every public organization needs to build in safeguards to protect the public interest in all their policies, procedures and plans. Progress to date is uneven, with some countries performing better than others, and there are some better-performing sectors within countries.

Cambodia

A recent study carried out at the request of the supreme council on administrative reform of the council of ministers (World Bank, 2000a) found that Cambodian households believe that public sector corruption is Cambodia's leading problem, and it is worse than three years ago. However, the enterprises surveyed found it by a close margin the second worst problem after street crime. Households, enterprises, and government officials surveyed all rank the courts as having the least integrity, followed by the Officer of the Prosecutor and the Customs Authority. Yet for the poor households surveyed, which among all households pay the largest percentage of their income in bribes, the largest bribes go to health and education authorities. Further analysis shows that corruption is reduced in agencies with merit-driven personnel systems that reward skills, competence and performance. Corruption is increased where there are low public sector salaries, delayed salary payments, weak performance evaluation and disciplinary procedures, extra-budgetary funding mechanisms, and lack of complaint mechanisms leading to disciplinary action. Thus, there is reason to hope that corruption will decline as a result of broad-ranging reforms to the State that were launched in 1999. At a meeting (Royal Government of Cambodia, 2001) chaired by Prime Minister Samdech Hun Sen, the ADB (2001a) launched its Cambodia governance assessment. ADB (2001b) updated the

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findings of the governance study o n C a m b o d i a in a new study l a u n c h e d in May, which compares governance challenges in four countries of the Mekong sub-region. T h e C a m b o d i a g o v e r n a n c e study has b e e n useful to t h e G o v e r n m e n t (council for administrative reform, 2001) in p r e p a r i n g its Governance Action Plan (GAP). These studies have led to Cambodia taking major steps in the past year to p r o m o t e good governance a n d to improve public sector performance. Some examples include: • • •

•

•

• • •

Budget i m p l e m e n t a t i o n in priority social sectors is gradually improving, while maintaining an overall e x p e n d i t u r e restraint; T h e financial sector has seen b a n k restructuring a n d steps have b e e n initiated to close non-viable banks; Public administration reforms include a civil service census, identification of ghost workers, the first phase of military demobilization, a n d crystallizing the concept of priority mission groups; In the area of natural resources, a widely consulted immovable property Law has b e e n submitted to the National Assembly for Adoption, a n d a draft forestry, fisheries a n d water laws are now u n d e r preparation; a n d T h e Seila program has instituted decentralized planning, financing a n d m a n a g e m e n t in a b o u t 1000 c o m m u n e s in seventeen o u t of twenty-four provinces. An independent supreme audit authority has been set up, reporting to the National Assembly. An anti-corruption unit has b e e n set u p in the Council of Ministers, a n d an anti-corruption law has b e e n drafted. A legal framework a n d e n f o r c e m e n t m e c h a n i s m s are b e i n g established.

T h e broad-ranging reforms underway in Cambodia, if fully i m p l e m e n t e d , would go a long way toward reducing corruption. But what are the chances that they will b e fully i m p l e m e n t e d ? Reforms are never easy to i m p l e m e n t by any government. Yet there is at least o n e i m p o r t a n t reason to anticipate that implementation will be even m o r e difficult in this case — Cambodia has a recent tragic legacy of civil conflict, a n d there is the n e e d to prevent future

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conflict. We recall that Cambodia has experienced frequent, a n d unusually drastic, changes in its political a n d economic regimes, culminating in the Kymer Rouge period from 1975-79 when m o r e than 1 million people were killed or starved to death, this was a b o u t 1 5 % of the population. T h e United Nations Transitional Authority in Cambodia (UNTAC) officially arrived in March 1992 to help govern the country until a new, legitimate g o v e r n m e n t was established after general elections. T h e UNTAC operation was u n d e r t a k e n u n d e r extremely difficult a n d complex conditions: 360,000 r e t u r n i n g refugees h a d to be repatriated, a n d the Khmer Rouge pulled out of the election process a n d resumed their civil war in the j u n g l e . General elections u n d e r UNTAC took place in May 1993. Following post-election turmoil a n d intensive negotiations, the three major political parties — the National United Front for an I n d e p e n d e n t , Neutral, Peaceful, a n d Cooperative Cambodia (FUNCINPEC), the Cambodia People's Party (CPP), a n d the Buddhist Liberal Democratic Party — f o r m e d a coalition g o v e r n m e n t . This political compromise resulted in an uneasy a r r a n g e m e n t of two co-prime ministers as well as co-ministers of the interior a n d defense. Fighting between the Khmer Rouge a n d the Royal Cambodian A r m e d Forces c o n t i n u e d sporadically. Serious political tension e m e r g e d within the CPP-FUNCINPEC coalition government in 1997 leading to fighting a m o n g the a r m e d forces in P h n o m Penh. T h e prime minister fled the country, foreign donors suspended or terminated a n u m b e r of assistance programs, a n d many foreign private investors lost confidence a n d left Cambodia. Through 1997 and 1998, Cambodia's growth rates were virtually zero. In late 1997 a g r e e m e n t was reached to hold Cambodia's second national election in 1998. Forty political parties ran for office, a n d three parties — the CPP, FUNCINPEC, a n d the Sam Rainsy Party — gained seats in the National Assembly. A new CPP-FUNCINPEC coalition government was formed in November 1998. T h e n mass defections by K h m e r Rouge soldiers, a n d the death of Pol Pot in early 1998, e n d e d for the most part three decades of civil war.

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This legacy of conflict makes governance reforms difficult for at least two reasons. First of all, the destruction of the economy a n d skilled h u m a n resource base has e r o d e d the necessary foundation for reform. During the K h m e r Rouge period, Cambodians wearing glasses or o t h e r symbols of professional status were systematically m u r d e r e d ; others left the country. Thus, there are now severe shortages of qualified personnel in all skill categories n e e d e d for effective public institutions. In addition, because of the weak state of the economy following the conflict, Cambodia's GDP per capita is o n e of the lowest in the region. T h e combination of skill shortages a n d a weak economy hinders institutional development, a n d contributes to a low level of tax collection, leading inter alia to average salaries of government officials of US$18 per m o n t h . This must be compared to a m i n i m u m cost of living for an average family in P h n o m P e n h of a r o u n d US$200 per m o n t h . With these constraints, the g o v e r n m e n t ' s reform capacity is d e p e n d e n t o n assistance from international donors. For example, donors typically give ad hoc, extra-budgetary incentive payments to Cambodian counterparts (Godfrey, 2000). Counterparts surveyed received average d o n o r supplements of $194. W h e n their respective d o n o r projects were completed, some found o t h e r projects, which c o n t i n u e d the supplements. Those that did n o t find new donors h a d to find income from o t h e r sources, a n d thus became, in effect, part-time government employees. This roller-coaster income stream a n d t h e 'projectizing' of g o v e r n m e n t ministries a n d provincial departments are seriously hindering the establishment of governance reforms: it sidelines the required build-up of capabilities. A second factor h i n d e r i n g the implementation of reforms is the legacy of civil conflict itself. Collier (forthcoming) points out that because of the inter-group h a t r e d left over from indoctrination d u r i n g the conflict period, the chances of further conflict in a society like Cambodia's is high. Political disputes that would b e m i n o r in o t h e r countries can escalate easily to violence in Cambodia, as evidenced by an attempted coup in November 2000, a n d two hotel bombings in July 2001. To reduce the risk of such violence, the g o v e r n m e n t is careful to address the n e e d s a n d

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grievances of the leaders of major factions. Since many state reforms are at least initially opposed by certain leaders, the government has to walk a tightrope — trying to move steadily forward o n its reform agenda, while ensuring that there is robust constituency of support powerful e n o u g h to outweigh o p p o n e n t s , a n d to dissuade t h e m from resorting to violence. For example, o n e goal of the GAP is to complete a nation-wide demobilization a n d reintegration p r o g r a m of its military personnel to reduce defense spending, to allow for increases in public expenditures in o t h e r areas (including institutional changes to combat c o r r u p t i o n ) , a n d to increase public security. Yet unless the p r o g r a m is perceived by factional leaders in the military as fair, t h e n violent confrontations could ensue. This risk has slowed down implementation b o t h by the government a n d by donors. T h e staff of institutions in charge of managing valuable natural resources (including national parks a n d environmental protection) have n o t received sufficient living wages. This creates incentives for t h e m to abuse their authority, for instance, by charging unofficial payments for services. In addition, the effective implementation of reforms requires the G o v e r n m e n t to address some sensitive issues such as political conflicts, the continuing military interests in logging activities, a n d cross-border smuggling activities. Again, the governm e n t n e e d s to tread carefully to e n s u r e that factional leaders perceive the process to b e fair. Because of Cambodia's post conflict situation, inter alia, reforms have b e e n delayed, a n d delays are likely to continue.

Laos

Corruption in Laos is a key constraint at all levels: "The politically powerful avoid paying tax, accept 'commissions' for facilitating projects or awarding contracts, and pocket pay-offs for reducing charges, duties or taxes for family and friends" (Stuart-Fox 1997, p. 207).

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Donor-funded procurements are rigged to include funds for cars for personal use and ministers try to commandeer cars provided to support donor projects for their personal use. This sets an example for lower-level officials, who supplement their low salaries through similar behavior. New opportunities for corruption opened up as economic reforms started to take hold in the 1980s. For example, giving provinces the right to trade directly with neighboring countries has opened the way for trade-related graft. The opening up to foreign investment has introduced opportunities to collect money to facilitate required authorizations, and the enhanced political and economic role given to the army has provided new opportunities for smuggling. Corruption has also spread to personnel management, leading to the rapid promotion of those close to powerful leaders (Stuart-Fox 1997). This behavior reduces government revenues, misallocates expenditures, reduces foreign investment, and erodes public trust. Many people believe that corruption has become so pervasive that it is now the main impediment to reform (Evens 1998). Naturally officials fear that their own actions will be discovered, and are uncertain what their status would be in a setting with less corruption. The current government has taken many actions to address the problem, including setting up an anti-corruption commission in 1993, placing new controls on illegal logging, and publicly condemning lavish consumption (Khaosan Pathet Lao, news bulletin cited in Stuart-Fox, 1997). Laos experienced its share of conflict until 1975, when the Lao people's democratic republic (PDR) was established. Since then, and unlike the situation in Cambodia, the ruling Lao people's revolutionary party (LPRP) has shown itself to be remarkably resilient. Transitions of power have tended to be smooth, the new generation of leaders has proven more open to reform, and the Politburo now has some ethnic diversity. Organized opposition to the LPRP is weak. A number of small guerrilla groups exist, bandits launch occasional attacks, and a few dissident groups are based in the USA and Eastern Europe. The media are entirely State controlled.

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This political stability has h e l p e d to u n d e r p i n the gradual develo p m e n t of institutions that could address corruption, although the necessary achievements are far from complete. T h e r e is some progress in three areas: establishing a constitutionally-based foundation for rule of law, a gradual expansion of political participation, a n d improvements in public financial m a n a g e m e n t . A m o r e robust system of rule of law can begin to punish corrupt officials. E x p a n d e d participation can expose a n d challenge leaders to rein in corrupt behavior, a n d improved financial m a n a g e m e n t provides tools b o t h to prevent corruption, a n d to catch c o r r u p t officials in the act.

Constitutional

Foundation

T h e foundation for an integrity system based o n rule of law in Laos came when the supreme people's assembly a d o p t e d the constitution in 1991 (Savada, 1994), declaring the country to be a people's democratic state. Although the assembly h a d b e e n charged with drafting a constitution in 1975, it gave the task a low priority. However, international development agencies were reluctant to invest in Lao PDR in the absence of fixed, knowable law. Following Politburo approval in 1990, a draft constitution was m a d e public. Despite calling for discussions of the draft, first a m o n g party a n d g o v e r n m e n t officials a n d t h e n a m o n g the public, the LPRP viewed d i s a g r e e m e n t with its party line unfavorably, a n d reiterated that a multiparty system would n o t be forthcoming. While the 1991 constitution contains elements of an earlier revolutionary orthodoxy, it is clearly influenced by the economic a n d political liberalization within Lao PDR a n d the dramatic changes in the wider socialist world. T h e constitution establishes the legality of a set of authorities that resemble the traditional differentiation between executive, legislative, a n d judicial branches of government. T h e delineation does n o t imitate any particular model (neither Vietnamese, n o r Russian, n o r French), but it pays respect to the idea of basic responsibilities lodged in designated institutions.

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Even t h o u g h the constitution has n o t c h a n g e d the i m b e d d e d patterns of the Laotian political system or t h r e a t e n e d the party's d o m i n a n t role, it has the potential to protect h u m a n rights a n d respect for the law, by the rulers as well as the ruled. It is expected that the observation of crumbling of communist regimes elsewhere, accompanied by widespread pro-democracy movements, will direct that Lao PDR will accede to growing d e m a n d s for a m o r e d e p e n d able rule of law. Some heartening legal and judicial improvements have taken place, including the evolution of an identifiable system of legislation, the publicizing of laws a n d decrees, the expansion of legal training, the completion of a b e n c h b o o k forjudges, a n d the development of a private Bar. However, the vast majority of new laws have n o t yet b e e n enforced. T h e legal system's overall capacity remains weak a n d faces many of the same systemic problems as the civil service. These problems c a n n o t be addressed with donor-funded projects alone, b u t require political c o m m i t m e n t a n d financial support. As a result, businesses will continue to be h a m p e r e d by ambiguous rules, o p a q u e enforcem e n t procedures, a n d opportunities for administrative intervention a n d discretionary actions. Laws t e n d to be enforced in ways that benefit vested interests.

Political Participation A gradual expansion of participation is a n o t h e r feature of the emerging integrity system. Lao PDR is, at best, at the very beginning of democracy. At present, the public participates in only two elections, namely, those for the National Assembly a n d for village heads. Even so, within this a p p a r e n t democracy the party controls elections a n d determines the outcomes by pre-selecting the candidates. At the national assembly election in D e c e m b e r 1997 only four nonparty candidates were selected to stand, of which only one gained a seat. Since then, some positive changes have taken place: m e m b e r s now discuss a n d vote o n draft laws a n d d o n o t enact all those submitted; an electronic voting system allows secret ballots; microphones

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p e r m i t m e m b e r s to speak from their seats, thereby p r o m o t i n g m o r e debate. A d e p a r t m e n t of citizens' complaints a n d petitions has b e e n established. Nevertheless, m u c h m o r e work is n e e d e d to make the national assembly a truly effective legislative body. Agenda setting needs to be m o r e systematic a n d validated t h r o u g h nationwide public consultation; legislative drafting a n d floor deliberation processes n e e d to be streamlined a n d legal draftspersons should be better trained. Legislative committees should be given m o r e technical skills; session proceedings should be d o c u m e n t e d ; a n d new laws, regulations, a n d session proceedings should be disseminated m o r e widely a n d systematically. T h e National Assembly is p r o c e e d i n g to address these a n d o t h e r improvements with support from a UNDP project (Reyes 1999).

Improving Financial

Management

Improvements in public financial m a n a g e m e n t constitute a third feature of the integrity system. Lao PDR is a m e m b e r of the International Monetary F u n d (IMF), which in 1998 laid down an international code for public financial m a n a g e m e n t (IMF, 1998). T h e code covers four b r o a d requirementsxlarity of roles a n d responsibilities; public availability of information; o p e n b u d g e t preparation, execution, a n d reporting; a n d i n d e p e n d e n t assurances of integrity. T h e g o v e r n m e n t has m a d e some progress in moving toward these requirements. As concerns role clarity, the constitution requires t h e national assembly to approve b o t h the b u d g e t a n d the development plan, b u t contrary to the code, the national assembly does n o t receive detailed information o n the budget. T h e r e is also n o indication that the national assembly approves or reviews extra-budgetary spending, quasi-fiscal activities, or government equity holdings. Lao PDR generally does n o t comply with the code's r e q u i r e m e n t for public availability of information. While a b u d g e t d o c u m e n t was released to the public for the first time in 1997 for fiscal year (FY) 1997/98, it did n o t cover extra-budgetary activities, contingent

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liabilities, tax exemptions, quasi-fiscal activities, or original and revised estimates for the preceding two years, or fiscal reporting practices as required by the code. Nevertheless, publishing the budget was a promising step toward compliance, although no such publication was released for FY1998/99. The FY 1997/98 budget did not conform to the code's requirement for open budget preparation, including public disclosure of economic forecasting assumptions, fiscal risks, overall budget balance, and accounting standards. As concerns independent assurances of integrity, government accounts are incomplete, inconsistent, and difficult to comprehend, and there is no independent audit authority (World Bank, 1997: pp. 99-113). The ministry of finance's department of financial Inspection only inspects the accounts of government organizations where financial problems are known to have occurred. This limited role is reportedly due to the lack of staff and expertise. The ADB has provided technical assistance to help set up a national audit office; however it is under the office of the Prime Minister, and thus not in compliance with the minimum standard of independence. The IMF's code also calls for the administrative application of tax laws to be subject to procedural safeguards. Here the situation has recently improved with assistance from a UNDP/IMF project (IMF/UNDP, 1999). Various reforms have reportedly improved the filing rate from 30 to 80 percent and increased collections significantly. Customs procedures have also improved, although customs revenues have not, probably because of low [quoted] valuation of imported goods, smuggling, and the tariff reductions required by ASEAN. Largely because of problems on the revenue side, the fiscal deficit has gradually worsened since the late 1980s, and reached 14.8 percent of GDP in 1998, excluding grants. For the first time, part of this deficit was not covered by foreign assistance and had to be financed by the Central Bank. Even when the government is determined to move on a specific issue, capacity for market-oriented development management,

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including indicative planning, policy formulation, a n d coordination, is limited. Until conditions change, significant progress is doubtful.

Thailand Thailand is u n d e r g o i n g its most fundamental political change since 1932 when the monarchy was replaced by a constitutional system. T h e hallmark of the change is the new constitution, which reflects broad Thai aspirations for greater democratization and m o r e responsive a n d accountable government. I m p o r t a n t reforms since the new constitution was promulgated include 11 new economic bills as part of the nation's response to the economic crisis. These bills lay the framework for improved functioning of the economy, modernized bankruptcy (reorganization a n d restructuring) procedures, a n d establishing strong regulatory frameworks for banks a n d o t h e r financial institutions. U n d e r the new constitution, five institutions will play an important role in advancing accountability a n d integrity at all levels of government: the National C o u n t e r Corruption Commission (NCCC), the freedom of information commission, the national audit commission, the judiciary, a n d the o m b u d s m e n . T h e constitutional requirements of increased decentralization a n d role for civil society a n d the media are also contributing to combating corruption. However, making progress in fighting corruption will require going beyond such watchdog mechanisms. Every public organization needs to build in safeguards to protect the public interest in all their policies, procedures a n d plans.

National Counter Corruption Commission Prior to 1975, anticorruption activities fell u n d e r police jurisdiction. Although the law provided for heavy p u n i s h m e n t if officials were convicted, loopholes m a d e detecting a n d prosecuting c o r r u p t i o n difficult, a n d r e g u l a t i o n s h a m p e r e d p o l i c e investigations. To strengthen the effort to combat corruption, the Counter Corruption

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Commission was established in 1975. Its activities were divided into three areas: suppression (complaint investigation), prevention, a n d public relations, b u t it also h a d limited effectiveness. T h e NCCC is a new constitutional body, separate from the executive a n d r e p o r t i n g directly to the national assembly, with powers to address corruption a n d reverse its deleterious effects on growth a n d development. It has the power to request asset a n d liability statements (ALS) from politicians a n d senior bureaucrats, a n d to remove t h e m from office if a statement is d e e m e d false. T h e NCCC can also investigate a n d prosecute cases of corruption, abuse of power a n d malfeasance. Recent Thai a n d ADB governance studies confirm the importance given by the new constitution to combating corruption (ADB, 1999b a n d 2000; Pasuk a n d Sungsidh, 1999; Borwornsak, 2001; National Democratic Institute, 2000). T h e new government that came into office February 2001 has avowed its c o m m i t m e n t to prevent a n d suppress corruption by strengthening the NCCC, a n d by a m e n d i n g laws a n d regulations to facilitate investigations, to prevent conflicts of interest, a n d to encourage citizens to expose corrupt officials. (Kingdom of Thailand, 2001). T h e NCCC estimates that u p to 30 p e r c e n t of g o v e r n m e n t p r o c u r e m e n t budgets may be lost d u e to c o r r u p t practices. Based o n data for 2000, this would be m o r e than the c o m b i n e d budgets of the Ministers of Agriculture a n d Public Health. At the u p p e r end, it would exceed the c o m b i n e d budgets of agriculture a n d public health. In carrying o u t its new m a n d a t e , the NCCC faces the challenges of transforming itself from a b r a n c h of the office of the Prime Minister into a public a u t o n o m o u s organization, developing new a n d m o r e flexible practices in m a n a g e m e n t , personnel administration, a n d b u d g e t a n d financial m a n a g e m e n t . T h e NCCC needs the capacity to prevent, investigate, a n d deter corruption at the local level. It must have additional training in appropriate investigative techniques a n d the recruitment of staff in disciplines such as money laundering a n d forensic accounting. T h e NCCC currently has a staff of 570. It is governed by a n i n e - m e m b e r commission, a p p o i n t e d by

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the government a n d serving for a four-year term (NCCC, 1999 a n d interviews). T h e ministry of interior has agreed to provide 50 staff to help the NCCC combat corruption in government p r o c u r e m e n t s , particularly at the sub national level. Although the additional expertise from the ministry will be welcome, extra care must be taken to ensure that the i n d e p e n d e n c e of the NCCC isn't compromised. T h e NCCC has h a d some early successes, including the forced resignation of a senior minister for alleged corruption. T h e Constitutional Court narrowly rejected a n o t h e r high profile case against the serving Prime Minister. H e h a d b e e n charged with concealing assets from scrutiny by the NCCC prior to attaining office.

Freedom of Information Office In addition to the NCCC, four other institutions will play an important role in advancing accountability a n d integrity at all levels of government: the freedom of information commission, the national audit commission, the judiciary a n d the o m b u d s m e n . A m o n g the earliest reforms to be i m p l e m e n t e d was the freedom of information (FOI) Act, developed a n d passed prior to the passage of the 1997 constitution. Several high-profile cases have highlighted the value to the public of the Act, tested its coverage, a n d developed i m p o r t a n t precedents in its application. NGOs a n d businesses have indicated their frustrations with the lack of availability a n d timeliness of information o n government proceedings, budgets a n d activities. Nonetheless, m e m b e r s of the FOI Commission view the progress as quite good. However, staff capacity development is n e e d e d to develop effective u n d e r s t a n d i n g of legal principles a n d precedents, to create a first-class office, which responds quickly a n d effectively to public requests, a n d to create p r o c e d u r e s within government agencies that specifically s t r e n g t h e n i n f o r m a t i o n s h a r i n g with the public.

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National Audit Commission T h e office of the auditor general, previously part of the executive, became an i n d e p e n d e n t public agency in 1999. In 2000, it was reconstituted as the Office of the National Audit Commission. It is responsible for conducting compliance, financial, a n d p e r f o r m a n c e audits of ministries, g o v e r n m e n t agencies a n d departments, SOEs, a n d sub national g o v e r n m e n t units. T h e national audit commission (NAC) is now also required to r e p o r t its audit findings to parliament a n d to make t h e m public. In addition, the commission's role has c h a n g e d considerably from that of its predecessor: it is implementing global standards on government auditing, emphasizing p e r f o r m a n c e auditing, a n d the development of a d e q u a t e internal controls. However, the national audit commission currently lacks teeth to enforce its findings. Few of the cases of potential criminal misc o n d u c t that the commission uncovers are forwarded by the parliam e n t to the p r o p e r authorities for prosecution or o t h e r disciplinary action. At a m i n i m u m , the commission's efforts to track the disposition of cases should b e s t r e n g t h e n e d a n d given greater transparency a n d publicity. In addition, m e t h o d s of improving systems, p r o c e d u r e s , a n d i n t e r n a l controls m u s t b e e n h a n c e d . G r e a t e r attention must also be devoted to strengthening interagency cooperation in response to audit findings. A n o t h e r major issue confronting the commission is its ability to ensure that p r o p e r controls a n d monitoring a r r a n g e m e n t s are in place to prevent the misuse of resources u n d e r decentralization. T h e commission staff are c o n c e r n e d that their ability to m o n i t o r resource use at local levels may n o t be adequate, a n d argue that decentralization must be d o n e gradually.

Judiciary Unlike previous constitutions, the new constitution firmly establishes the principle of constitutional supremacy; thus any law, act, o r decree that is contrary to or inconsistent with the constitution will

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be u n e n f o r c e a b l e . A new constitutional c o u r t will e n s u r e t h e constitutionality of all legislation a n d the functioning of state organs in accordance with the constitution. It also rules o n high-level corruption cases referred by the NCCC, such as the alleged asset concealment case against the Prime Minister m e n t i o n e d above. T h e new constitution also provides for the courts to be self-administered rather than by the Ministry of Justice. New administra-tive courts will be able to adjudicate disputes between state entities or officials a n d private citizens. Finally, the constitution provides for a s u p r e m e administrative court a n d administrative tribunals, plus the creation of an appellate administrative court if necessary. An i n d e p e n d e n t judicial commission of administrative Courts will regulate their activities.

Ombudsman Thailand's first O m b u d s m a n was a p p o i n t e d in April 2000, a n d the second approved by the senate May 2002. T h e O m b u d s m a n inquires into complaints w h e n a government ministry or agency, a state owned enterprise, or a local g o v e r n m e n t entity stands accused of failure to comply with the law or to perform its duties effectively, a n d has caused injury to the public or to the individual originating the complaint. T h e O m b u d s m e n is also empowered to refer cases to the constitutional a n d administrative courts. Since the Office of the O m b u d s m a n was constituted, a b o u t 2000 complaints have b e e n received, a n d a b o u t half have b e e n settled to the satisfaction of the complainant. Most complaints concern land titles, police, a n d public utilities."

Sub-national Institutions,

Civil Society, and the Media

In addition to the four main accountability institutions, there are other constitutional mechanisms that can help to combat corruption. Take, for example, the new emphasis o n decentralization. By the e n d of the 8th Plan period (2001), the share of local spending

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(including intergovernmental transfers a n d relative to total governm e n t revenues) will increase to 20 p e r c e n t from approximately 14 percent in 2000. Local spending is expected to increase to 35 percent of total g o v e r n m e n t revenues by the e n d of the 9th Plan period (2006). Both NGOs a n d the World Bank-funded social investment fund (SIF) have developed a considerable body of experience in working with local villages. T h e SIF experience suggests that significant cost savings may be realized by devolving local p r o c u r e m e n t to the local level. O n e example of this is the local of construction of community childcare centers. Following government standards of construction, community bidding o n projects has resulted in building such centers for 300,000 Baht, c o m p a r e d to the "standard cost" of 700,000 Baht. Thailand development research institute staff indicates that villagers involved in their pilot project did n o t support "standard cost" approaches, identifying t h e m [or this] as a significant source of corruption, which once identified could be controlled. SIF m a n a g e m e n t does n o t claim that all communities are able to realize such savings by eliminating corrupt p r o c u r e m e n t practices. T h e SIF internal evaluation indicates that some local leaders have n o t acted transparently, a n d where transparency is low, the opportunities for corruption continue. T h e b r o a d e r dissemination of the village transparency m a n u a l would provide s t r e n g t h e n e d tools for villagers. In pilot villages, this alone has triggered major changes in village political economy, vasdy reducing the role of local "influential people." T h e term "influential people" is used in Thailand to indicate local s t r o n g m e n who skirt the law, often u n d e r the protection of provincial or national level politicians, for w h o m they act as campaign canvassers. Civil society can help ensure government accountability in o t h e r ways. Citizens can initiate t h r o u g h a petition an investigation by the NCCC with the intent of impeaching an official; or call for an investigation by the NCCC to inspect a n d ascertain anomalies of the ALS of the council of ministers (Kingdom of Thailand, 1997). A m o n g o t h e r areas for investigation are new ethical standards provided in the NCCC Act of 1999, which prohibit officials from

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engaging in any activity that results in a conflict of interest. It is clear that n o single organization or g r o u p of citizens can develop expertise to effectively oversee the vast array of g o v e r n m e n t policies a n d programs. Civil society can also play a critical role in communicating through the media to a b r o a d e r public. Civil society's u n d e r s t a n d i n g of specialized issues often exceeds that of journalists. Civil society provides an i m p o r t a n t c o u n t e r to the perspective of government. Some associations a n d NGOs have i n d e p e n d e n t capacity to undertake research o n issues of concern to their m e m b e r s h i p . It is still essential to develop a non-partisan network of civil society organizations that specialize in various aspects of governance and, can provide effective, accountable oversight to s u p p l e m e n t the efforts of the NCCC. T h e organizations should develop a non-adversarial, partnership relationship with g o v e r n m e n t agencies for which they provide oversight, as well as with the NCCC.

Viet Nam As in Laos, new opportunities for corruption have o p e n e d u p as economic reforms started to take hold in the 1980s. Unlike PRC, Viet Nam has a weak track record in implementing structural reforms to address the problem. Viet Nam e n d e d over three decades of conflict in 1975, b u t paid a steep price for victory, including an estimated 1.5 million deaths a n d the loss of a n o t h e r 1 million citizens who fled the country after the war, including many skilled professionals a n d technicians. For this a n d o t h e r reasons, the unified government did n o t succeed in achieving its initial goals for economic development a n d poverty reduction. To address these problems, the fifth national party congress held in 1982 sanctioned privately-held small enterprises a n d the "family economy" for agriculture. T h e latter gave greater scope for individual initiative, a n d began to lead to increased agricultural production. Building o n this, a major economic reform process known as the Doi Moi renovation was l a u n c h e d in 1986.

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Analysts of Viet Nam's policy reforms since 1986 (Fforde a n d de Vylder, 1996; McCarty, 2001) find a n u m b e r of reasons for the rapid, largely successful transition from a p l a n n e d to a market economy. These included the timing a n d gradualist approach of policy reforms, the fact that central p l a n n i n g h a d only b e e n partially i m p l e m e n t e d a n d the ability to benefit from b e i n g located in a rapidly growing region aided by the credibility a n d advantages of citizens perceiving the reforms as b e i n g of domestic origin. Ano t h e r factor was the m a i n t e n a n c e of political stability since, unlike in Cambodia, the Viet N a m regime has b e e n in power since 1975. Naturally, Viet Nam's impressive accomplishments have b e e n accompanied by an increased awareness of corruption. It was widely r e p o r t e d that nearly o n e third of Vietnam's public investment e x p e n d i t u r e in 1998 — equivalent to 5 p e r c e n t of GDP — was lost to fraud a n d corruption, a n d the situation hasn't improved since t h e n . A m o n g efforts to reform the integrity system in Viet N a m are improvements in public administration, sub-national government, a n d the legal a n d judicial framework.

Public

Administration

Corruption in Viet Nam thrives because of complicated a n d unclear administrative procedures, excessive regulations, the o p a q u e nature of d e c i s i o n - m a k i n g , lack of p u b l i c i n f o r m a t i o n , b u r e a u c r a t i c discretion on the p a r t of middle-level officials, a n d long delays. State agencies a n d individuals regularly violate laws, a n d those responsible for law e n f o r c e m e n t also often violate the law in their adjudication practices. C o r r u p t practices are also exacerbated by the weak accountability of the State enterprise sector. A n o t h e r contributing factor is low public sector pay. Despite some recent increases, the basic salary is equivalent to a b o u t US$12 p e r m o n t h , while the most senior civil servants receive a r o u n d US$104 per m o n t h . However, salaries r e p r e s e n t only p a r t of civil servants' r e m u n e r a t i o n . They also receive allowances (including for housing) a n d collect various payments for services r e n d e r e d in their work. In some cases, the ministry or agency pools these unofficial payments

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and distributes them to staff at the end of the month. Despite this, many civil servants cannot make ends meet without a second income. This results in civil servants pursuing various strategies to augment their incomes, ranging from holding multiple public sector offices or maintaining other employment through to petty bribe taking and corrupt practices. Businesses report many types of corruption, including "speed money", e.g. payments to move a tax matter more rapidly through the tax bureaucracy, payments to secure a rapid, true estimate of taxes owed, or bribes requested in exchange for under-stating tax obligations. There is also reportedly embezzlement through falsification of records, such as tampering with official receipts for tax payments. There are reports of overprinting of documentary strip stamps, auxiliary labels, and cigarette stamps. There are also cases of the selling of choice positions, delaying remitting taxes to benefit from the "float", paying bribes to investigators to sit on cases, delay investigations, or dismiss complaints, and irregularities in public procurement. Both government and Vietnamese communist party (VCP) policies emphasize their opposition to public sector corruption, and the government has issued new decrees on corruption and on the elimination of wasteful practices in the public sector. Disciplinary actions as a result of investigations by the state inspectorate and the VCP are also increasing. Recent achievements also include simplifying administrative procedures in ministries and agencies at the central and local levels, restructuring ministries through mergers, defining roles and functions more clearly, and introducing more transparent personnel procedures. In 1990, 18,000 officials were dismissed or charged with corruption. In 1998, the ordinance against corruption was approved, and the Prime Minister established a hotline to receive business complaints. In addition to the general state inspectorate, several ministries now have units for tackling grievances and corruption. The VCP launched an anticorruption campaign in 2000, but results have been limited. Promulgation of the civil code in 1998 provided the public with avenues for redressing complaints and for mediation in disputes with government

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administrators. Additional measures are needed, for example, minimizing red tape and arbitrary discretion, increasing the amount of information in the public domain, harnessing citizens' groups to fight corruption, and developing an appropriate legal framework (World Bank, 2000b). The government's efforts to turn state enterprises into shareholding companies could help to reduce corruption, but the process has been slow. 5,991 state enterprises remain; in comparison, only 502 have been "equitized" (PERC, 2001). By comparison, the PRC by 1999 had cut state enterprise employment by nearly half in 2 years. The government's recently completed public administration review (PAR) review proposes a number of additional reforms. The review's recommendations include a variety of provisions, such as obtaining public comments on draft legislation, improving the dissemination of information about new legislation and about court judgements, streamlining the corporate regulatory framework, and professionalizing the civil service. However, targets being set are modest, and progress toward achieving them slow. Again, the comparison with PRC is instructive; while Viet Nam targets a 15% drop in civil service employment, PRC is on track to achieve a 50% drop. Improvements in public financial management are also underway. Transparency lies at the heart of the Vietnamese constitution; however, achieving this vision will require changing how decisions in the public sector are taken and communicated. Progress made includes an improvement in external debt management and agency reporting of financial information, and the drafting of new accounting standards that are 95 percent in compliance with international accounting standards, the publication of some budgetary information, and development of the National Audit Office. These initial steps provide a basis on which to build. Given that the budgetary system allocates financial resources according to society's goals, the need to improve budgetary data and information flows is imperative. Some of these measures could be undertaken immediately, such as the publication of more detailed information about the budget and public accounts, including audit reports.

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Also, as in o t h e r countries, every public organization needs to build in safeguards to protect the public interest in all their policies, procedures a n d plans.

Sub-National Government A n o t h e r factor that increases the risk of corruption is the strong autonomy of major provincial areas. For example, some municipalities have set u p dozens of public enterprises, many of which are nonproductive vehicles for rewarding loyal cronies. T h e government has tried to cut back o n the creation of such new enterprises t h r o u g h stricter regulations, with only intermittent success. Viet Nam's local administration system is divided into three levels: provinces (61 units), districts (600 units), a n d c o m m u n e s (10,330 units). Each locality at all three levels has a representative body, the people's council, a n d an executive body — the people's committee — which correspond to the National Assembly a n d the government at the central level. Although they are set u p as separate bodies, the people's committees a n d people's councils often have overlapping m e m b e r s h i p . T h e local people elect the people's councils.with candidates usually n o m i n a t e d by the Viet N a m fatherland front. T h e people's councils select the chairs a n d vice-chairs of the people's committees. While ultimate legislative authority rests with the National Assembly, provincial a n d local g o v e r n m e n t d e p a r t m e n t s r e p o r t to the local people's committees a n d assemblies a n d to the central line ministries. Responsibility for planning, implementation, a n d operation of facilities is also split, although large u r b a n centers a n d a n u m b e r of provincial governments enjoy a high degree of autonomy. Overall, the interrelations between different levels of g o v e r n m e n t are complex in terms of supervision, accountability, reporting, a n d allocation of tax revenues. Complexity with r e s p e c t to t h e relations b e t w e e n different government agencies is increased by the unclear demarcation of the mandates of various agencies, leaving r o o m for discretion in the interpretation of responsibility a n d accountability, a n d resulting

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opportunities for corruption. This makes more coherent the decentralization of management to local administrations, which is a high priority goal of the PAR. However, the lack of capacity within local authorities to provide public services efficiently presents a hindrance to decentralization. Problems with efficiency and accountability in part reflect the low morale of underpaid local officials and their lack of training, along with inadequate recurrent funding (Rondinelli and Hung, 1997).

Legal and Judicial Framework

As mandated by the 1992 constitution, Viet Nam has been engaged in building a state ruled by law. Many laws have been passed, courts and legal aid centers established, courthouses built, standards set for judges, lawyers educated, prosecutors and law enforcement officials trained, legal information systems developed, programs to disseminate legal information to the public instituted, and legal education and professional training institutions created a n d / o r expanded and improved. The international donor system has complemented Viet Nam's own heavy investments in developing its legal system by providing substantial assistance to all the main components of the legal and judicial system. Although much has been achieved, officials and donors agree that much remains to be done. Current efforts in developing the legal and judicial system have the following shortcomings that hinder efforts to combat corruption: the lack of a clear law development strategy; an inadequate institutional framework for effective implementation and enforcement of the law, especially in regard to the quality and independence of trials; and the lack of a coordination strategy and action plans. In the legal reform area, Viet Nam's and PRC's track records are both weak. The quality of laws and regulations is weak in several respects. Superior and subordinate regulations are often inconsistent, and sometimes provisions contradict each other. The resulting uncertainty is aggravated by the practice of not precisely specifying what provisions of previously issued legal documents are to be

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abrogated when a new legal d o c u m e n t takes effect. Provisions in superior regulations are sometimes too general, leaving too m u c h discretion to lower-level regulations. In other cases superior regulations may be too detailed a n d cause difficulties in implementation a n d the n e e d for a lengthy process to revise inappropriate provisions. T h e process of p r e p a r i n g legal d o c u m e n t s sometimes fails to e n c o u r a g e active participation by relevant state organs a n d entities with legal expertise, a n d public opinion is also n o t sought. T h e m e c h a n i s m for reviewing draft legal d o c u m e n t s to check their constitutionality, legality, uniformity, consistency, a n d enforcement feasibility is also still weak. A n o t h e r weakness is that preparation tends to be d o n e without p r o p e r policy studies a n d research, which means that legal d o c u m e n t s often have to be revised shortly after their promulgation. In addition, subordinate regulations are often n o t p r e p a r e d together with superior regulations, causing implementation delays a n d uncertainties. These weaknesses are caused partly by inappropriate rules a n d procedures a n d partly by a lack of capability on the part of those entrusted with the tasks. Local authorities play an i m p o r t a n t role in i m p l e m e n t i n g legal institutions; however, they issue too many legal documents, which leads to the fragmentation of administrative power a n d non-uniform application of legal provisions. O n e reason for this situation is that n o law regulates the promulgation of legal d o c u m e n t s by local authorities. T h e situation is similar at the national level, in that t h e r e is n o r e q u i r e m e n t that legal d o c u m e n t s must have b e e n published before they take effect. Many administrative procedures are c u m b e r s o m e a n d excessively regulated, creating opportunities for abuse of power a n d corruption by state officials, a n d the quality of services provided does n o t yet m e e t the expectations of people a n d business. State agencies have b e e n slow to i m p l e m e n t reforms in this area, p e r h a p s because of a lack of awareness of the needs, an inability to find ways to improve procedures, a n d a lack of motivation. F u n d a m e n t a l attitudes in relation to respect of the law have n o t yet developed. State agencies a n d individuals regularly violate laws,

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a n d those responsible for law enforcement also often violate the law in their adjudication practices. An additional problem in addressing corruption is that Viet Nam's judicial system is centralized with ultimate decision-making authority resting with the national assembly. T h e system has n o t yet developed the predictability a n d quality of decision-making n e e d e d to s u p p o r t a market-based system in areas such as contract dispute resolution. Only the national assembly is authorized to i n t e r p r e t its legislation and the concept of precedents has n o t been established. Neither the reasoning underlying decisions n o r the decisions themselves are published in a systematic way for the record: there is thus n o public record, as we would u n d e r s t a n d it. Many j u d g e s d o n o t have legal training a n d their a p p o i n t m e n t s are based o n patronage. T h e credibility of the system is thus low, a n d viewed as o p e n to bribery. Modernizing this system is essential to provide a foundation of relative certainty for private investment decisions. A p r o g r a m of legal a n d judicial reform was approved in 2001 by the Prime Minister as part of a Public Administration Reform Master Program, a n d based on a Legal Needs Assessment carried o u t with assistance from international agencies.

Next Steps Now t h a t Viet N a m has s u c c e e d e d in t h e m a i n l y u n g u i d e d e m e r g e n c e of unregulated markets, it faces different challenges in developing a s o u n d basis for market-led growth, including the rule of law, transparency, effective government regulation, a n d successful anti-corruption strategies. This is proving difficult because, a m o n g other things, Viet Nam's prior reform success was mainly in response to external economic pressures a n d bottom-up societal changes. However, the n e x t stage of reform r e q u i r e s a m o r e proactive a p p r o a c h for which the government has little preparation or precedent. Further, the nomenklatura, who enjoy rents a n d privileges u n d e r the present system, having m u c h to lose from cutting back the remaining market distortions a n d o p a q u e bureaucratic systems, also cause delays.

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Many of the important early reforms involved dismantling controls where the political decision was difficult, b u t implementa-tion was straightforward. By contrast, some of the administrative reforms now required are less controversial in principle, b u t are complex to i m p l e m e n t . S o m e r e q u i r e n e w institutions, w h i c h necessitate a g r e e m e n t about appropriate models a n d the translation of agreed principles into appropriate legislation. T h e institution-building tasks are lengthy, involving deep-seated changes in systems, practice, a n d understanding, or they require parallel m o v e m e n t o n a n u m b e r of fronts. These reforms d o n o t lend themselves to simple conditionality, n o r can they b e fully accomplished within the time frame of a typical technical assistance project or loan. Viet Nam's partners n e e d to adapt their p r o c e d u r e s to s u p p o r t this lengthy process.

Regional Efforts In addition to country-based efforts, these four countries all participate in regional efforts to combat corruption. For example, the Asia-Pacific Initiative on combating corruption was launched in 1999 at a workshop held in Manila a t t e n d e d by 250 participants from over 35 ADB (2000a) a n d OECD countries a n d economies. Since then, t h e initiative works to co-ordinate anti-corruption activities amongst regional anti-corruption practitioners a n d with the international d o n o r community, a n d to strengthen public-private partnership a n d support civic organizations in their fight against corruption. Its objective is to p u t in place the framework conditions for effectively combating corruption by identifying appropriate political, institutional, a n d o t h e r reforms necessary for the various participating countries. T h e initiative is a p a r t n e r s h i p of Asia-Pacific g o v e r n m e n t s , businesses, media, a n d NGOs, along with a range of sponsoring international organizations including ADB, the Organization of Economic Cooperation a n d Development (OECD), the D e p a r t m e n t for international development (UK), foreign ministry of the governm e n t of J a p a n , Konrad A d e n a u e r Foundation, office of the Prime

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Minister of the Republic of Korea, organization of economic cooperation and development, Pacific Basin economic council, transparency international, United Nations development program, United States agency for international development, and the World Bank. At a conference in November 2001 in Tokyo, seventeen members signed an anti-corruption action plan for Asia-Pacific, a legally non-binding document that contains a number of principles and standards towards policy reform that interested governments politically commitment to implement. Cambodia, Lao PDR, Thailand and Vietnam have indicated that they may agree to sign up to the action plan, which would be a sign of their commitment to fight corruption more aggressively. The action plan will build on existing relevant regional and international instruments and good practices such as the anti-corruption policy of the ADB, the APEC public procurement principles, the 40 recommendations of the FATF as supported by the Asia/Pacific Group on money laundering, the OECD convention on combating bribery of foreign public officials in international business transactions and the revised recommendation, the OECD council recommendation on improving ethical conduct in the public service, the OECD principles on corporate governance, the PBEC charter on standards for transactions between business and government, the United Nations convention on transnational organized crime and the WTO agreement on government procurement. This process is supported by a website (www.oecd.org/daf/ASIAcom) that provides information on on-going and planned assistance programmes and initiatives.

Conclusions This chapter has examined recent progress of Cambodia, Laos, Thailand and Viet Nam to set up effective institutions to fight corruption, drawing on governance assessments recently carried out by the Asian development bank. These countries make up part of the greater Mekong sub-region, and it is an important regional grouping roughly lying between two huge countries — India and China — and bridging their cultures also. We find corruption

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hinders economic development a n d poverty reduction in all four countries. Earlier, economic reforms involved dismantling controls where the political decision was difficult, b u t i m p l e m e n t a t i o n was straightforward. By contrast now, some of the structural reforms n e e d e d to combat corruption are less controversial in principle, b u t are complex to implement. Some, for instance, require new institutions, which necessitates a g r e e m e n t a b o u t appropriate models a n d the translation of agreed principles into appropriate legislation. All four countries have taken steps to combat corruption, with Thailand the furthest advanced; yet concrete results are h a r d to obtain. Anti-corruption efforts in these four countries reveal similarities b u t a striking range of variation, making t h e m an interesting site for comparative analysis of the causes a n d consequences of different approaches. For example, the recent legacy of civil conflict adds a particular challenge to Cambodia. In addition to national efforts to combat corruption, regional efforts can provide knowledge a n d s u p p o r t for the national champions, a n d will help to measure relative progress.

Note T h e views e x p r e s s e d h e r e i n a r e t h e p e r s o n a l views of t h e a u t h o r a n d may n o t reflect the views of the institution with which h e is affiliated. T h e analysis in the section o n Lao PDR is based o n information u p to the e n d of 1999.

References ADB (1999a) Poverty Reduction Strategy. See: http://www.adb.org/ Documents/Policies/Poverty_Reduction/default.asp?p=poverty. ADB (1999b) Governance in Thailand: Challenges, Issues, and Prospects. See: http://www.adb.org/Documents/Papers/Governance_Thailand/ default.asp?p=govpub. ADB (2000) The ADB's Approach for Improving Governance in Thailand. Manila. Draft.

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ADB (2000a) Combating Corruption in Asian and Pacific Economies. See: h t t p : / / w w w . a d b . o r g / D o c u m e n t s / C o n f e r e n c e / C o m b a t i n g _ Corruption/default.asp?p=govpub. ADB (2001a) Cambodia: Enhancing Governance for Sustainable Development. See: http://www.adb.org/Documents/Books/Cambodia_ Enhancing_ Governance/ default.asp?p=govpub. ADB (2001b) Key Governance Issues in Cambodia, Lao PDR, Thailand a n d Viet Nam. See: h t t p : / / a d b . o r g / D o c u m e n t s / B o o k s / K e y _ Governance_Issues/default.asp. Borwornsak Uwanno (2001) Depoliticizing key institutions for combating corruption: Case study of the new Thai constitution. In: Larmour P & Wolanin N (eds.), Corruption and Anti-Corruption. Canberra, Asia Pacific Press: 177-203. Collier P (undated) Economic causes of civil conflict and their implications for policy. In: Crocker CA & Hampson FO with Aall P (eds.), Managing Global Chaos, forthcoming from Washington DC, US Institute of Peace (online). See: http://www.worldbank.org/research/ conflict/papers/civilconflict.htm. Council for Administrative Reform (2001) Governance action plan: Progress report, in office of the council of ministers, Documents Supporting Intervention by Sr. Minister Sok An, Consultative Group Meeting, Tokyo, June 12-13, 2001, Annex B. Evens G (1998) 1997-98 Vientiane Social Survey Project. Ministry of Information and Culture, Institute for Cultural Research, Vietnam. Fforde A & de Vylder S (1996) From Plan to Market. Boulder, Colorado, Westview Press. Godfrey M Chan Sophal, Toshiyasu Kato, Long Vou Piseth, Pon Dorina, Tep Saravy, Tia Savora & So Sovannarith (2000) Technical Assistance and Capacity Development in an Aid-Dependent Economy: The Experience of Cambodia, Working paper No. 15, Phnom Penh: Cambodia development resource institute. IMF/UNDP (International Monetary Fund/United Nations Development Programme) (1999) Project LAO/96/005: Phase II, Strengthening Fiscal Management; Tax and Customs Administration Reform. Vietnam, IMF/UNDP. Kingdom of Thailand (1997) Constitution of the Kingdom of Thailand, Articles 60.76: 293. See: http://www.krisdika.go.th/law/text/lawpub/ e l l 102540/text.htm#l.

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Kingdom of Thailand (2001) Policy of the Government of H.E. Prime Minister Thaksin Shinawatra, speech delivered to the National Assembly, 26 February (unofficial translation). McCarty A (2001) Governance Institutions and Incentive Structures in Viet Nam. Ha Noi, National Economics University, Draft. National Counter Corruption Commission (NCCC) (1999) Annual Report (in Thai). National Democratic Institute (2000) Combating Corruption at the Grassroots: The Thailand Experience 1999-2000. Bangkok. Pasuk Pongpaichit & Sungsidh Piriyarangsan (1999) Corruption and Democracy in Thailand. Bangkok, Silkworm Books. Political & Economic Risk Consultancy Ltd. (PERC) (2001) Rating Government Policy, 25 July. Reyes SL (1999) Review of the Legislative Process in the National Assembly of the Lao PDR. UNDP/Norwegian Agency for Development Cooperation. National Assembly Project, Vietnam. Rondinelli D & Le Ngoc Hung (1997) Administrative restructuring for economic transformation in Vietnam. International Review ofAdministrative Sciences, 63: 509-528. Royal government of Cambodia (2001) Fourth National Forum between The Royal Government of Cambodia and Donor Community, 29 January, Phnom Penh. Savada AM (1994) Lao PDR: A Country Study. Washington, DC: Library of Congress. See: http://lcweb2.loc.gov/frd/cs/latoc.html. Stuart-Fox M (1997) A History of Lao PDR. Cambridge, U.K. Cambridge University Press. World Bank (1997) Laos Public Expenditure Review: Improving Efficiency and Equity in Spending Priorities, Vol. 2. Washington, DC, World Bank. World Bank (2000a) Strengthening Governance in Cambodia: Confronting the Challenges of Corruption and Weak Public Service Delivery, Phnom Penh: unpublished draft. World Bank (2000b) Viet Nam: Combating Corruption. Washington, DC, unpublished draft.

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Chapter 11

The Institutional Economics of Legal Institutions, Guanxi, and Corruption in the PR China

Matthias Schramm and Markus Taube

Introduction The phenomenon of corruption in the Peoples' Republic of China has recently gained greater attention in the public discussion, as the media have reported more intensively on cases of exposed corruption, associated arrests, court sentences and even executions. 1 Many have the impression that the extent of corruption in China has increased dramatically, but this conclusion is not warranted. The phenomenon has existed for some time (Kwong, 1997) but has ^ e e , for example, Agence France Press (2000a) 'China sentences top lawmaker to death for graft', in http://insidechina.com/news.php3?id=184562, downloaded on 02.08.2000; ibid. (2000b) 'Chinese official sentenced to death for corruption', in: http://insidechina.com/news.php3?id=182982, downloaded on 02.08.2000; ibid. (2000c), 'Scores of Chinese officials punished for three gorges corruption', in http://insidechina.com/news.php3?id=221933, downloaded on 21.11.2000. In the corruption perception Index published annually by Transparency International, China was ranked at 3.5 for 2001 (on a scale of 0.0 'very corrupt' to 10.0 'corruption free') and shared 57th place with Argentina, directly behind Turkey and Ghana. Russia was ranked at 2.3 in 79th place. The index comprised 91 countries in 2001. http://www.transparency.org/documents/cpi/2001/cpi2001.html, downloaded on 10.07.2001. In the preceding years China was ranked at 3.1 in 63 r d place in 2000; 3.4 and 58 th place in 1999; 3.5 and 52 nd place in 1998.

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been increasingly b r o u g h t into the open, n o t least because the ruling elite have realised that r a m p a n t corruption seriously jeopardises the successful continuation of the economic transformation process a n d will also e n d a n g e r their own claim to power in the m e d i u m term. 2 This study examines the p h e n o m e n o n of corruption in China using the instrument of the new institutional economics. T h e goal is n o t to illuminate h e r e the relationship between the parties involved in c o r r u p t i o n using a principal-agent analysis. Instead, the analysis focuses o n the institutional framework for c o r r u p t transactions in China whose goal is to prevent opportunistic behaviour of o n e of the involved parties. In this respect, especially the relationship between corruption a n d the guanxi networks will be examined, and, in addition, how they are affected by the (non-) existence of a functioning legal system. T h e study first provides a working definition of the corruption p h e n o m e n o n a n d a description of the methodological a p p r o a c h (Section 1). T h e n , the order-creating function of the Chinese guanxi networks is p r e s e n t e d (Section 2), followed by an analysis of the particular importance of the guanxi networks for the coordination of c o r r u p t transactions (Section 3). T h e c o m p l e m e n t a r y a n d substitutive relationship between the two order systems of the guanxi network a n d the legal system a n d the ensuing implications for the corruption p h e n o m e n o n in China are e x a m i n e d in Section 4. A summary of results concludes the study.

The Corruption Phenomenon Corruption probably dates back to the very first instances of organized h u m a n life (Klitgaard, 1988, 77ff). In China, the penal code

2

The president of state and general secretary of the communist party of China, Jiang Zemin is quoted as saying that the struggle against corruption in the party and government is 'a matter of life and death of the party'. See Agence France Press (2000:c) 'Communist party orders corruption cases to be used as ideological fodder', in: http://insidechina.com/news.php3?id=184548, download on 02.08.2000.

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of the Qin Dynasty (221-207 BC) already included the p h e n o m e n o n of corruption a n d placed heavy penalties o n it. 3 T h e problem of corruption seems to be closely linked to the institutional conditions of h u m a n s living together. O n c e the constitution of institutions permits the escape from the Hobbesian j u n g l e , this step also establishes a n d codifies the power of Leviathan and enables its (parasitical, self-seeking) exploitation in societal interaction (Hobbes, 1651). Institutional power over transactions — also of an economic nature — seems to inevitably lead to corrupt a n d corrupting behavior, or, in the words of Lord Acton, 'power tends to corrupt a n d absolute power corrupts absolutely'. 4

Definitional Considerations Corruption is closely linked with the norms and formal a n d informal rules of a specific society (Goudie & Stasavage, 1998), a n d c a n n o t be viewed in isolation of its societal context. This means that a definition must necessarily be p r e s e n t e d in a generalized form. 5 Accordingly, a n d especially with regard to the Asian a n d specifically the Chinese cultural context, it would be a p p r o p r i a t e to follow the argumentation of Max Weber a n d to place the definition at the e n d of an epistemological process instead of at the b e g i n n i n g (Weber, 1904 & 05). Nevertheless, we will attempt a definitional framework into which the further steps of the investigation will be inserted a n d which will also e x p a n d the framework. O n e of the most general definitions is offered by Bardhan for w h o m corruption is ultimately 'the use of public office for private 3

It was an 'Pflichtverletzung im Amt' (infringement of duties in office) to accept gifts, to grant personal advantages, to bribe and to embezzle. The penalties ranged from reprimands to arrest, banishment and corporal punishment (Heberer, 2001). One of the oldest Indian sources on corruption dates back more than 2300 years (Klitgaard, 1988). 4 Comment of Lord Acton (1834-1902) in a letter to Bishop Mandell Creighton (quoted after Bardhan, 1997). 5 This is particularly the case for judgements regarding the moral and to a certain extent the legal dimensions of an action that is considered corrupt.

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gain' (Bardhan, 1997): a n d a wide-spread definition in the literature based o n Klitgaard sums u p corruption as (Klitgaard, 1988): Behaviour that deviates from the formal duties of a public role because of private-regarding (personal, close family, private clique) pecuniary or status-gains; or violates rules against the exercise of certain types of private regarding behaviour. (Ney, 1967) These very b r o a d definitions form the basis for the following considerations, which will further specify the definition. Accordingly, the characteristics of corruption or corrupt behavior are: •

•

•

System-specific or system-immanent, de facto personally related power exploited for personal gain. This includes monetary a n d n o n - m o n e t a r y rewards t h a t t r a n s c e n d the i n c o m e for work p e r f o r m e d a n d that can b e driven by b o t h egotistic a n d also altruistic motives. An i m m a n e n t contract concluded via a specific transaction, i.e. the transference of property rights, which because of its illegality is n o t subject to any officially legitimized institutional executive or sanctioning instance. At least two e c o n o m i c subjects always interact in the above transference of property rights. This explicitly excludes the theft or embezzlement of state property as well as influencing the political process to preserve power.

In addition to these characteristics of corrupt relationships, we also n e e d to categorize the various identified types of corruption that are essential for an analysis of the p h e n o m e n o n . A distinction can be m a d e between spot-market corruption a n d relational corruption. Spot-market corruption includes all transactions that are carried o u t to avoid an isolated a n d immediate p u n i s h m e n t or for gaining an isolated a n d immediate privilege. T h e transaction relationship ends with the exchange of the particular property rights a n d has n o importance for the participating economic subjects either before of after the transaction. An example is giving policeman money to avoid getting a ticket for a traffic violation. Although the existence

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and frequency of such transactions certainly allow for conclusions to be drawn with regard to the underlying institutional framework, i.e. its sanction possibilities and the credibility of sanction threats, this aspect of corruption is not the object of further analysis in this study. Instead, focus will be placed on the phenomenon of relational corruption, which also in Asia accounts for the major share of corrupt activities. This is understood as long-term (multi-periodical) transactional relationships which are formed on the basis of an implicit contract and which ensure the attainment of a systemimmanent advantage (at least for one of the contracting partners) by influencing the political decision-making process on various levels; without the transaction this advantage would only be attainable — if at all — by using additional resources. Examples are the obtaining of licenses, access to public contracts, or the avoidance of safety or environmental-protection requirements.

Theoretical Considerations Even though the theoretical discussion has not achieved definitional clarity or a widely accepted categorization, the occupation with the corruption phenomenon has been a component in the economic research programme for some time. The main studies include those of Becker (Becker, 1968), Krueger (Krueger, 1974), Rose-Ackerman (Rose-Ackerman, 1978), Klitgaard (Klitgaard, 1988) and Tanzi (Tanzi, 1995). The economic analysis has been increasingly concentrating on the application of the instruments provided by the new institutional economics. 6 Recourse is taken primarily to the principal and agent theory, which is used in a variety of forms. The common element in these models is the examination of the relationship between the superordinate institutions (principal) and the acting officials (agents). The corrupting individual is included in this 6

Interest is focused here on studies that deal explicitly with the institutions that the corruption is based on (or with institutional deficits) and incentive structures. The literature that deals with the effects of corruption on economic growth is not considered here. For the latter, see in particular P. Mauro, 1995.

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relational network as a third element, which takes place, as by Klitgaard, via the incorporation of a client (Klitgaard, 1988). Mostly, however, the newly created transactional relationship is constructed as a principal & agent m o d e l with the special case of the existence of two principals who pursue a n d implement various goals and an agent who is obligated to b o t h of the principals (Rose-Ackermann, 1978; Groenendijk, 1997). In addition, game-theory models are also finding increasing use for portraying within such models the sanction a n d incentive mechanisms as well as the economic d e p e n d e n c i e s in a corrupt transaction (Dabla-Norris, 2000). Further model approaches make use of the theory of rent seeking. T h e a r g u m e n t a t i o n is that corruption payments can b e d e m a n d e d o n t h e basis of m o n o p o l y p o w e r c r e a t e d by i n s t i t u t i o n a l particularities. This approach examines scenarios in which resources for establishing or preserving particular institutional a r r a n g e m e n t s are used in order to siphon off monopoly rents vis-a-vis third parties, for example, in the form of corruption payments (Rose-Ackermann, 1978). In this theoretical framework we must include the analyses that examine the origin of corruption in the context of economic transformation processes a n d their institutional particularities. Points to examine h e r e are, firstly, the discretionary scope for decisionm a k i n g , which is c r e a t e d in t h e wake of such c o m p r e h e n s i v e processes of change and, secondly, o t h e r types of system arbitrage that result from the parallel existence of market-economy system elements a n d atavisms of the former command-economy system (e.g. consciously constructed dual price systems or p o o r institutional fits between sub-sectors that arose d u r i n g the process of change) (Abed & D a v o o d i , 2000). In all of these explanatory approaches, the general tendency of observing social a n d institution conditions only on the margins is a p r o b l e m . 7 In m a n y cases, t h e n , a r g u m e n t s as to what is perceived as a c o r r u p t or criminal transaction are hardly possible.

7

An exception here is at best the examinations of corruption based on a transformation-induced system arbitrage.

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Especially theoretical explanations using rent-seeking or principalagent models are often implicitly based o n normative assumptions as to what transactions in a society are already regarded as corrupt or still as n o r m a l political processes, such as lobbying activity. However, 'reciprocity is in any society a rule of life, a n d in some societies at least it is the rule of life' (Noonan, 1984; Posner, 1980). In China, owing a m o n g o t h e r things to the weakness of formal institutional arrangements, a system of transactions tied to persons as well as implicit a n d relational contracts has b e e n established, a n d this system is in n e e d of closer examination. Thus, in the following, this system of the so-called guanxi networks will be analyzed, a n d in the light of these results a new assessment a n d explanation of corruption in China will be given.

The Institution of the Guanxi Networks T h e Chinese guanxi networks can be u n d e r s t o o d as institutions that arose centuries ago to secure trade relations in an e n v i r o n m e n t that was insufficiently covered by the formal legal system (Carr & Landa, 1983; Posner, 1980). In n u m e r o u s areas they are still an ordering factor in Chinese society, and virtually every Chinese person is c o n n e c t e d to at least o n e guanxi network. These guanxi networks are based on personal relations marked by certain c o m m o n elements such as coming from the same village or region, serving in the same military unit, b e l o n g i n g to the same party unit, schools, associations, etc. However, m e m b e r s h i p in a guanxi network is n o t limited to such c o m m o n experience b u t can also be arranged by a person in a position of trust whose reputation is the guarantee of the p r o p e r behavior of the person introduced. In this way individual people are able to expand their radius of economic relations, backed u p by guanxi networks, to include various networks each with different resources (Rrug & Polos, 2000) .^ A targeted expansion of

8

'Resources' refer to the information, goods and services accessible to the affiliated club members.

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one's network to people who are regarded as useful for the pursuit of common interests can also be achieved by the giving of gifts. By accepting the gift or service, the involved person obligates himself to perform an undefined reciprocal service at an unspecified time in the future. Thus, by accepting the gift or service, an implicit contract is concluded the fulfillment of which is linked to the particular network (Hsing, 1998). The mutual exchange of services and the acceptance of abstract debt obligations is the main integrating force within a guanxi network. It can be understood as a mutual investment in social capital (Dasgupta & Serageldin, 1999), which is the framework of a system of order that co-ordinates the interaction between the network members. The resources used for this purpose are by no means insignificant. In a village investigated by Yan in the province of Heilongjiang, a household spends between 10% and 20% of its disposable income for the nurturing of its guanxi networks (Yan, 1996). The Hong Kong independent commission against corruption (ICAS) determined in 1993 that Hong Kong businessmen spent 3% to 5% of their investment in mainland China on gifts and maintenance of guanxi networks (Ming Pao, 21.08.1993, as quoted in Chan, 1999). Guanxi networks can be seen as clubs that guarantee their members the enforceability of available property rights in an institutionally disorderly environment, thus lowering transaction costs (in the form of contact and especially control costs). The club assures that members have the certainty of disposal over their rights. The expenses necessary for club membership can be seen as an investment in social capital, which upon joining have the characteristic of sunk costs. The stocks of social capital created in a guanxi network are fixed costs for the members (Ben-Porath, 1980), which however enable the variable costs of contacts, negotiations and implementation of transactions between club members to be reduced to a minimum. Since the fixed costs are higher than the variable costs, the incentive for a high intensity of interaction is an integral part of the guanxi system. Contract fulfillment is assured

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in that information regarding the h o n o r i n g or breaching of contracts spreads rapidly a m o n g the club m e m b e r s . Co-operative, contracth o n o r i n g behaviors thus also b e c o m e the d o m i n a n t strategy in oneperiod games (unique transactions between club members) since these u n i q u e games are b o u n d u p in an iterative system of multiple games (transactions) with o t h e r club members. 9 H o n o r i n g contracts a n d co-operative behavior is positively sanctioned by the possibility of engaging in further, low-cost transactions with club m e m b e r s . In contrast, the response to opportunistic behavior is a withdrawal of goodwill or even exclusion from the club, 1 0 which, for the club m e m b e r affected n o t only means the loss of investment b u t also a massive cost increase for future transactions. These costs could be so high that withdrawal from the field of activity is necessary with possibly existence-threatening implications (Carr & Landa, 1983; Goudie & Stasavage, 1 9 9 8 ) . n T h e increase in utility that can be gained by maintaining long-term business relations thus clearly exceeds the short-term gains from an opportunistic breach of contract. O n the basis of this co-coordinating mechanism which clearly reduces the transaction costs of economic exchanges, the Chinese guanxi networks have advanced the development of the division of labor in the economic process (and also economic development) in C h i n e s e society over t h e c e n t u r i e s , a n d they c o n t i n u e to exist as c o m p l e m e n t a r y a n d parallel m e c h a n i s m s for o r d e r i n g economic interaction. Especially in the reform p e r i o d since 1979, the organization of economic activities by the guanxi networks has regained importance. The Chinese reform model of gradual transition which is advancing the restructuring of institutional conditions in the form of a hardly foreseeable trial-and-error p r o c e d u r e r a t h e r

9

Axelrod shows that co-operative behaviour only becomes the dominant strategy in repeated games and is able to overcome the prisoners' dilemma (Axelrod, 1983). 10 For a documentation of sanctions of varying degrees practised in China, see Wank, 1999. 11 For a concrete example of how the mechanism is used in a Chinese community, see Krug & Polos, 2000.

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than a system of economic policy that creates p l a n n i n g confidence (Rawski, 1999) is a cause of great institutional uncertainty in economic interaction (Wank, 1999). T h e reform period is characterized by the dissolution of established, central-administrative ordering mechanisms and a n o t always simultaneous creation of new, more strongly marketoriented elements. 1 2 This leads to vacuums in the system of o r d e r which are filled by reverting to traditional, institutional arrangements and behavior patters and thus to a new heyday of personally oriented, relational assurance of transactions in guanxi networks (Root, 1996). 13

Corruption in the Context of Guanxi Networks In a society p e r m e a t e d by such guanxi networks, an analysis of the behavior of isolated individuals can never be absolute b u t must be subject to an evaluation that is relative a n d suited to the situation. T h e definition of morally correct behavior is n o t identical for all interaction partners b u t is based o n the identity of the counterpart. Members of the core groups, i.e. a guanxi network, experience,

12

The first formal contract legislation, which did not take effectuntil 1 July 1982, four years after the reform process had begun, was still strongly bound to the old central administrative system and quickly came into contradiction to subsequent laws and decrees. Nevertheless, the law was not revised until 1993 and it was not until October 1999 that a comprehensive, uniform contract law went into effect. Even more problematic than this delayed reform legislation is the poor enforcement of existing law, which is the result of administrative interventions and an often insufficient training of the personnel that enforces the law (Tao & Zhu, 2001; Wank, 1999). 13 It would be wrong, however, to attribute the recent gain in importance of the guanxi networks solely to the planning uncertainty that has arisen in the wake of the Chinese transformation process. Already in the previous century, the Maoist policy of strengthening the allocative decision-making power of the state coupled with the expansion of the discretionary power of local cadres assisted the formation of personalised relational networks: guanxi networks. The guanxi networks that developed in this period were profitably used and expanded in the era of economic restructuring under Deng Xiaoping (Nee, 2000; Chan, 1999; Yan, 1996).

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in general, a different behavior than individuals o n the outside. 1 4 This is particularly i m p o r t a n t for the further analysis since the provision of certain goods or the implementation of transactions, which from the perspective of a guanxi relationship a p p e a r as n o r m a l a n d even necessary transactions within the club, from the perspective of a legal system that is i n d e p e n d e n t of p e r s o n a l relationship would certainly fall within the sphere of corruption (Goudie & Stasavage, 1998). Insofar as guanxi networks a n d legal systems co-exist, there is a blurring of the limits between regular economic transactions and corruption.10 For the individual economic actor this means that as long as n o clear hierarchy exists between these two systems, a n d as long as guanxi transactions are assigned a clearly delineated functional zone within the legal system, conflicts of interest will always arise between maintaining club discipline, on the one h a n d , a n d following legal statutes, o n the other. 16 Accordingly, a not insignificant portion of behavioral patterns that are classified as corrupt by external institutions such as the World Bank or the OECD are i m p o r t a n t aspects of the social fabric

14

The difference that emerges here is that between zijiren (in-group members), to which also all members of the guanxi network belong, and the wairen (out-group members). The latter are generally classified as sheng (raw) and thus have lower importance in all social interactions; they are confronted with an entirely different array of norms and rules. The situation-adequate relativizing of Chinese transaction relationships is also to be understood in this sense. These relationships are seen to be oriented around the collective in general (e.g. the guanxi network), but in particular social contexts they take on individualistic-discriminatory features (Gabrenya & Hwang, 1996). 15 This effect is further exacerbated by the reformulation of value concepts and behaviour codes raised in the transformation process. Slogans such as 'let some first become rich' or Deng Xiaopin's famous saying, 'regardless of whether the cat is black or white the main thing is whether it catches mice' were by no means politically acceptable between the second half of the 1960s and the end of the 1970s. Determining the boundary between barely legal and already illegal behaviour has become much more difficult for the individual citizen to determine (Heberer, 2001).

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(White, 1996). What is m o r e , the network-preserving transactions, which appear illegal from the viewpoint of a supra-individual, codified legal system, are precisely that which establishes institutions that create legal certainty in a relational, person-oriented environment. A moral a n d ethical evaluation of (economic) transactions, which are n o t h i n g m o r e than social relationships, that is divorced from the social context (a n o t insignificant part of which was constructed by these very trade relation), is thus n o t justified. Examining the case numbers of corruption in China u n d e r this point of view, it is necessary to relativize the accusation of corruption in many areas. It would be wrong, however, to dismiss the entire p h e n o m e n o n of Chinese corruption as a p r o b l e m of classification, caused by the parallel existence of two systems of o r d e r with differing functional principles a n d values. In Chinese society — i n d e p e n d e n t of a n d beyond the gray zone that results from the parallel existence of personally b o u n d a n d personally i n d e p e n d e n t ordering mechanisms — t h e r e is also a clear, n o r m a t i v e differentiation of morally u n i m p e a c h a b l e behavior a n d c o r r u p t i o n or illegal g r a n t i n g of advantage, etc. T h a t is to say, corrupt behavior aimed at achieving private advantage can very well be identified in China, a n d there is a considerable a m o u n t of it. A particular characteristic h e r e is that considerable portions of these c o r r u p t transactions take advantage of the existence of guanxi networks (Lee, 1991). It must be noted, however, t h a t s u c h t r a n s a c t i o n s in i n t e r p l a y solely with t h e e n v i r o n m e n t outside of the given guanxi networks can b e classified as completely 'corrupt'. Within the network itself they serve the formation of social capital a n d the m a i n t e n a n c e of relationships just

16

Moreover, in the context of the Chinese transformation process, which is only roughly controlled by the central state and otherwise based on the trial-and-error principle, the interpretation of specific behaviours as correct or incorrect is by no means always consistent. Instead, observations have shown that particular measures that were tolerated or even promoted at one point in time because they were considered useful for the economic development of a region or an industry, at a later point of time were then classified as illegal and were prosecuted. The concepts 'legal' and 'corrupt' are thus subject to a relativity that is determined by the changeable progress in the transformation process (Ding, 2000).

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as any other 'regular' transactions and are indistinguishable from them. It is a fundamental insight that corrupt transactions, just like all other economically based interactions, are grounded on the exchange of specific bundles of property rights and like these must deal with the cost problems of transaction initiation (search and information costs), of contract completion (negotiating and decision costs) and safeguards against opportunistic behavior of the transactions partners (monitoring and implementation costs). 17 Corrupt transactions, however, are particularly endangered by ex post opportunism. Since corruption payments are a form of investment, which have no value outside the transaction, the payer places himself in a potential hold up of the receiver who can demand additional payment or who may not — or not sufficiently — perform the agreed service, without needing to fear counter measures from the payer. In light of the illegal character of corrupt transactions, the established, formal institutions of the national market and legal systems cannot be laid claim to (Goudie & Stasavage, 1998), so that other ordering mechanisms must be utilized (Rose-Ackermann, 1999). The ideal solution of such a problem from the perspective of new institutional economics is the 'vertical integration' of all transaction partners under the roof of a governance structure that encompasses the entire transaction: an enterprise (Williamson, 1985). This solution, however, is not available for corrupt transactions because of their illegal character and the fact that one party is usually part of the public administration and not internalisable. In contrast, the Chinese guanxi networks seem to offer a practicable, and under the given conditions, a transaction-cost-minimizing (best practice) solution for the problem of corrupts transactions. The suitability of guanxi networks for the solution of the problem of corrupt transactions is seen in the ability of this institution to transform high-risk exchanges into self-implementing contracts. At the same 17

On the costs of market utilisation, see Richter, 1990. For the specific risks and uncertainty factors of corrupt transactions, see Goudie & Stasavage, 1998.

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time, they are an approximation of an ideal solution in terms of institutional economics: with their significant investments in building t h e n e t w o r k , all p a r t i c i p a t i n g p a r t i e s d o c u m e n t a c r e d i b l e commitment; they e x p e n d resources which can only lead to a payoff if future transactions are carried out in the interests of all contracting parties. T h e above argumentation shows that these contractual relations are 'stable' since all participating parties must have an interest in long-term transaction relationships. Because of their high portion of such investment costs, guanxi networks create governance structures that force contract-honoring behavior of the transaction partners, analogous to vertical integration solutions (Reja & Tavitie, 2000). Guanxi networks thus m a n a g e to provide a n infrastructure in which the transaction partners can safeguard themselves from the ex post opportunism of o n e side. T h e u s e of g u a n x i n e t w o r k s for c o - c o o r d i n a t i n g c o r r u p t transactions n o t only makes sense in functional terms; it is also optimal with regard to transaction-cost theory. As described above, transactions co-ordinated in guanxi networks have high fixed costs b u t low variable costs. For the individual this means that with a high volume of transactions the average cost of individual transactions can be lowered. T h e r e is thus an incentive to use a guanxi network for as many transactions as possible. T h e individual can thus use the same ordering mechanism that forms the basis for his 'regular' transactions also for transactions carried o u t with the clear i n t e n t i o n of m a n i p u l a t i n g for personal advantage the political decision-making process — transactions that must accordingly be classified as 'corrupt'. In this way h e can n o t only save the costs of setting u p a special system for coordinating corrupt transactions b u t can additionally also lower the average costs of all transactions co-ordinated via this guanxi network. 1 8 18

An example for the simultaneous use of guanxi networks for co-ordination of legal and illegal transactions is the phenomenon of smuggling in southern China. Most of these smuggling transactions are co-ordinated by the same guanxi networks that also serve the arrangement of legal relationships (foreign trade, direct investment) between parties, mostly in southern China, Hong Kong and Taiwan (Heilmann & Gras & Kupfer, 2000).

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Chinese guanxi networks are thus b o t h efficient a n d transactioncost-lowering o r d i n a t i o n m e c h a n i s m s for initiating, c o n d u c t i n g a n d controlling transactions in an environment characterized by high institutional uncertainty. T h e question that must be e x a m i n e d is t h e e x t e n t to w h i c h a n i n t e n s i f i e d e s t a b l i s h m e n t of a n institutionalized a n d codified legal system will lead to a displacement of the guanxi networks that p e r m e a t e Chinese society, or w h e t h e r the existence of two systems that offer legal security is possible in an economy in the long term. T h e following analysis of the complementary or substitutive position of guanxi networks in a legal system will therefore also try to clarify the questions of the m e d i u m term continuation of the institutional u n d e r p i n n i n g s of a significant portion of what can be classified as corruption in China.

Guanxi Networks and Codified Law as Competing Systems of Order T h e increasing o p e n i n g of the Chinese economy in the wake of the transformation process requires to an increasing extent an institutional framework that supports market transactions to ensure the availability of enforceable property rights. With this a n d also the i m p e n d i n g m e m b e r s h i p in the W T O in mind, the Chinese leadership is endeavoring — a n d also obligated — to develop a n d introduce a legal system that codifies the security of property laws at a supra-personal level. Such a legal system will stand as a direct competitor to the established guanxi networks, which have b e e n the main g u a r a n t o r of property rights. Guanxi networks a n d a legal system thus characterize two i n d e p e n d e n t systems of o r d e r that are initially n o t mutually exclusive. Although their coexistence seems quite possible within certain limits, 19 the questions remains as to

l9

On the basis of their surveys, Krug & Polos reach the conclusion that 'trust and contracting are not seen as substitutes, let alone mutually exclusive. Instead they reinforce each other: Without trust no contract, and without ambiguity-reducing contract no trust' (Krug & Polos, 2000).

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whether this coexistence is desirable and can be permanent from overall economic and individual perspectives. The establishment of an institutional framework that offers legal security at a supraindividual level beyond social relationships seems at first glance to offer significant advantages especially with regard to transaction frequency, the free choice of transaction partners, and especially transaction costs. 20 This should lead individuals to no longer rely on the system of guanxi networks to secure their transactions since there is now no uncertainty regarding the enforcement of contractual rights. From this standpoint, guanxi networks should gradually lose importance and ultimately disappear once a functioning legal system gradually becomes established. For the phenomenon of corruption, this would mean that an important ordering mechanism would disappear, the transaction costs for corrupt transactions would increase, and, ceteris paribus, the incidence of corruption must decline. The superiority of a supra-individual legal system postulated here vis-a-vis the personalized guanxi networks is, at closer examination, doubtful and certainly not supportable as a categorical formulation. Supra-individual legal systems appear superior in terms of their ability to provide good legal security, but this unambiguous assertion is no longer possible with respect to the transaction costs that are linked to the provision of good legal security. Especially the utility and cost-based rationale for shifting transactions once co-ordinated by guanxi networks to the ordering mechanism of a legal system appear doubtful in terms of the concepts of path dependency and embeddedness. 21

20

As a result of his cliometric studies, North asserts: 'The move, lengthy and uneven, from unwritten traditions and customs to written laws has been unidirectional as we have moved from less to more complex societies and is clearly related to increasing specialization and division of labor associated with more complex societies.' (North, 1990). 21 For the future viability of guanxi networks, see also Wang, 2000.

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Transaction Security as a Public or Club Good In terms of the establishment of institutional order, legal security can be regarded as a public good. In contrast, legal security provided by guanxi networks, as discussed above, could be labeled a club good. Seen in these terms, a n u m b e r of characteristics e m e r g e that must be considered in the analysis. T h e central feature h e r e is the optimal club size. With an increasing n u m b e r of club m e m b e r s , an effective sanctioning of infringements is n o longer assured. O n c e the optimal size of a club has b e e n exceeded, the costs informing club m e m b e r s of individual infringements increase (Carr & Landa, 1983). Sanctioning misbehavior, which d e p e n d s o n the complete information of all club m e m b e r s r e g a r d i n g the trustworthiness of all others, can n o longer be g u a r a n t e e d u n d e r all circumstances. This could make opportunistic behavior appear worthwhile for some individuals (Buchanan, 1965), a n d the function of the club as a guarantor of legal security for its m e m b e r s is thus challenged. 2 2 With a public good, provided by a codified a n d institutionalized legal system, this p r o b l e m does n o t arise (Buchanan, 1965). O n the contrary, even an expansion of the n u m b e r of 'consumers' of this good will not, by definition, allow any rivalry in consumption to arise. Additional users lower the per-capita payments without giving rise to crowding effects (Sandler 8c Tschirhart, 1997). Especially in rapidly growing economies such as China, the increase in transaction partners a n d the advancing division of labor via specialization is a m o t o r for this growth (North, 1984). With an increasing division of labor, Guanxi networks have definite limitations because of their club character; since the optimal club size is r e a c h e d m u c h before the optimal p e r m e a t i o n of a division of labor (and accordingly the

22

This can be seen in terms of the prisoners' dilemma model in which defecting is the dominant strategy — as long as there are not an endless number of games. Once there is a significant likelihood that opportunistic behaviour will not be recognised and sanctioned because of information deficits, there is an incentive for opportunistic behaviour in dependency on the degree of sanctions — an incentive to prefer defecting over co-operating.

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optimal n u m b e r of transactions a n d transaction partners) has been reached.

Fixed and Variable Costs of Transaction Assurance As shown above, guanxi networks can reduce the variable costs of a transaction to a m i n i m u m . After a comparatively high initial investment in social capital for m e m b e r s h i p in the club, only marginal transaction costs (mostly limited to search costs) accrue for all further transactions. Since, however, the investments are in the form of sunk costs, these are n o longer significant in an individual's utility maximization calculations. G u a n x i networks thus contain an i m m a n e n t incentive for maximizing possible transactions, since each additional transaction must only be assessed in terms of its variable costs. In contrast, there are opportunity costs for club m e m b e r s h i p that arise because transactions with outsiders are n o t possible. These costs are h e n c e a function of the club size, a n d decrease as the club size increases. 2 3 In an institutional legal system there are n o fixed costs for the individual. Legal security exists for every transaction a n d protects every transaction. In such a system, however, there is a fundamental difference between the existence of rights a n d their enforcement. T h e legal security granted by such a system is thus closely b o u n d to the credibility a n d impartial application of sanctions. If o n e of t h e s u p p o r t s is w e a k e n e d , however, b e it t h a t t h e j u d i c i a r y is n o t sufficiently i n d e p e n d e n t or the executive is n o t able to enforce the imposed sanctions, the system loses its functionality in many areas. 2 4 It must be clearly u n d e r s t o o d that the judiciary must

23

See here also the discussion of optimal club size and the control costs dependent on this in Sandler & Tschirhart, 1997 and Carr & Landa, 1983. 24 Despite decades of intensive efforts in establishing a codified legal system with independent courts, great uncertainty still remains in China concerning the true independent status of the court system and thus the role of the courts as a legal arbiter (Wank, 1999).

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n o t only be free of preferences in a personal regard b u t must also give o u t clear signals of its credibility. A codified legal system does n o t establish the public good of contractual a n d legal security simply as a matter of course. Rather, it is the task of particularly specialized individuals to manifest this in everyday social dealings. It is n o t clear, however, w h e t h e r precisely these specialists, who because of their institutional position have (spatially limited) m o n o p o l y power, can be exonerated of opportunistic behavior (Elster, 1989). If, in addition, an economic community is highly opportunistic, i.e. contractual infringements are relatively frequent; the costs of pursuing claims that the individual must bear are very high. In the case of a contractual infringement, the individual thus incurs extensive transaction costs, which can be characterized as legal implem e n t a t i o n costs. Accordingly, an individual who engages in a transaction has a high ex ante uncertainty over the actual variable costs of the transaction, which are a function of the likelihood of a contract infringement by the transaction p a r t n e r as well as the institutional law enforcement. This uncertainty becomes part of the individual's maximization calculation and tends to reduce the n u m b e r of transactions carried out. 2 5

Path Dependency in the Use of Systems of Order A reduction of the importance of guanxi networks for the ordination of economic transactions a n d a strengthening or sole use of the legal system is prevented to a great extent by the p h e n o m e n o n of path d e p e n d e n c y (David, 1985). In the final analysis, path d e p e n d ency points to competition failure in the area of institution selection

25

It should be pointed out that there is no agreement as to whether informal institutions should be introduced in any form as restrictions in an individual's utility calculations. It is often pointed out that informal institutions are obeyed not because of external sanctioning mechanisms but because the utility they give the individual, since complying with them is part of the individual's direct preferences — as a result of socialisation and internalisation (Mummert, 1995).

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owing to the lack of possibilities for setting u p several parallel institutions a n d making a direct comparison of p e r f o r m a n c e . 2 6 Instead, decisions are m a d e u n d e r conditions of great uncertainty for the establishment of a specific institution for which investments are m a d e which, in the form of sunk costs, create incentives for the retention of the institutional solution that has b e e n chosen even if, at a later p o i n t in time, a n o t h e r institution may be considered a better option. A change in systems of o r d e r a m o n g the competing systems is thus n o t m a d e solely o n the basis of weighing u p the accruing costs p e r transaction. An economic actor with a shortterm orientation will persist in using a once-established system of o r d e r until the opportunity costs of maintaining the existing system surpass the costs of constructing a new system within the calculation period that is relevant for this economic subject. As shown above, guanxi networks display a great a m o u n t of sunk costs, which account for the great inertia of this ordering mechanism. T h e low variable costs of using this mechanism a n d the high fixed costs m a k e it extremely resistant to c h a n g i n g to a c o m p e t i n g mechanism once the initial investment has b e e n m a d e in the social capital it is based on. This means that the p e r f o r m a n c e of the Chinese legal system must be regarded as considerably superior to the guanxi networks for the individual economic actor to view as rational the use of the legal system instead of the guanxi networks to safeguard transactions. Alternatively, massive pressure by political decision-makers must be exerted for legal systems to displace the guanxi networks. 27 It is also an o p e n question whether these decisionmakers are themselves truly interested in the establishment of an i n d e p e n d e n t , unbiased legal system.

26

In the course of the Chinese transformation process, precisely this has occurred in a number of cases. By selecting regions whose differing institutional arrangements were tested within the context of pilot projects, it was possible to test the performance and suitability of competing institutions (World Bank, 1992). 27 Such a politically induced replacement process can be associated with massive compensation payments to the 'losers' of structural change, depending on the political constellation.

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Embeddedness of Order Mechanisms An additional argument for the continuation of guanxi networks stems from their embeddedness (Granovetter, 1985) in Chinese society as a whole. Within the overall system, the choice and arrangement of institutions does not follow economic efficiency criteria alone but is also influenced by cultural and social factors (DiMaggio, 1994). On the basis of their development within China over the centuries and millennia, die guanxi networks are strongly anchored in Chinese society and have an important function not only on the economic level but also dominate interaction on a political and social level. For Hamilton, guanxi networks are the primary cultural feature of China and stand, moreover, in an antagonistic relationship to the Western system based on legal rights. In the West, Christianity combined with preexisting institutions to produce clear jurisdictional lines of top-down personalized authority. In the economic sphere, this led to legal definitions of property and ownership. But Chinese institutions rest on relation-ships and not jurisdictions, on obedience to one's own roles and not on bureaucratic command structures. [...] [B]oth jurisdictional principles and the autonomous individual are historically absent in the Chinese worldview, and thus were not incorporated in Chinese institutions. Instead, Chinese society consists of networks of people whose actions are oriented by normative social relationships. (Hamilton, 1994) In this light, it seems doubtful that a rapid replacement of guanxi networks — motivated by economic efficiency considerations alone — by a comprehensive legal system is likely.28 Conclusions This article has attempted to illuminate the institutional foundations of corruption in China. To do this it was first necessary to contrast

28

DiMaggio, however, sees a counter trend on the global level, 'If anything, relational contracting seems to be on the rise, as more firms develop "network" alternatives to conventional markets and hierarchies'(DiMaggio, 1994).

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the traditional u n d e r s t a n d i n g of corruption from the perspective of a personally u n b o u n d legal system with an analysis of a system where socio-economic interaction takes place within personally bound systems of order: the guanxi networks. T h e results show that there are many areas where legal a n d moral assessments are n o t possible without taking into consideration the underlying social system. Whereas certain transactions are c o n s i d e r e d c o r r u p t from t h e s t a n d p o i n t of a personally b o u n d legal system, the same transaction from the perspective of guanxi relationships appears to be normal a n d even a necessary measure for maintaining a personally b o u n d system of order. T h e definition of corruption c a n n o t be m a d e universally b u t must be u n d e r t a k e n on the basis of the system of order that a society is based on. In light of the parallel existence of b o t h a personally i n d e p e n d e n t legal system a n d n u m e r o u s personally b o u n d guanxi networks, the classification of individual behaviors in China as 'corrupt' must, in most cases, remain relative. Apart from this relative concept of corruption that derives from the parallel existence of two systems of order, a n o t h e r form of corruption was also identified. This is n o t an e n d o g e n o u s part of the functional mechanism of guanxi networks b u t instead takes advantage of the c o o r d i n a t i n g m e c h a n i s m s of existing guanxi structures. In actual fact, guanxi networks offer a transaction cost minimizing solution (best practice) for the p r o b l e m of o r d e r that c o r r u p t transactions are c o n f r o n t e d with. G u a n x i networks, by binding investments in social capital, are able to transform very risky trade relationships into contracts that are self-implementing. Insofar as transaction activity within guanxi networks have high fixed costs a n d low variable costs, it is obvious that already existing guanxi networks transcend their n o r m a l use a n d are also used to co-ordinate illegal, corrupt transactions. In this way, n o t only the average costs of all transactions carried o u t can b e lowered, b u t also it is also possible to economize on the expenses for creating a special security mechanism for the share of corrupt transactions. T h e intensified efforts to establish a legal system in China raise the question of w h e t h e r this will displace the guanxi networks a n d ultimately also weaken the p h e n o m e n o n of corruption.

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An analysis of the factors that d e t e r m i n e such processes of institutional change — institutional p e r f o r m a n c e , cost structures, p a t h d e p e n d e n c y a n d e m b e d d e d n e s s — shows, however, that a substantial displacement of the guanxi networks, even with a further strengthening of the Chinese legal system, is n o t to be expected. Thus, from this side, n o stimulus for reducing the p h e n o m e n o n of corruption in China can be anticipated.

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Chan KM (1999) Corruption in China: A Principal-Agent Perspective. In: Wong Kh & Chan HS (eds.), Handbook of Comparative Public Administration in the Asia-Pacific Basin, Public Administration and Public Policy, 73: 299-324. Dabla-Norris E (2000) A game-theoretic analysis of corruption in bureaucracies. IMF Working Paper WP/00/106, Washington. Dasgupta P & Serageldin I (1999) Social Capital. A Multifaceted Perspective, Washington. David P (1985) Clio and the economics of QWERTY. American Economic Review, 75: 332-7. DiMaggio P (1994) Culture and Economy. In: Smelser N & Swedberg R (eds.), The Handbook of Economic Sociology. Princeton. Ding XL (2000) Systemic irregularity and spontaneous property transformation in the Chinese financial system. The China Quarterly, 163: 655-76. Elster J (1989) Social norms and economic theory. Journal of Economic Perspectives, 3: 99-117. Gabrenya WK & Hwang K-K (1996) Chinese Social Interaction: Harmony and Hierarchy on the Good Earth. In: Bond MH (ed.), The Handbook of Chinese Psychology. Oxford, Hong Kong. Goudie AW & Stasavage D (1998) A framework for the analysis of corruption. Crime, Law/Social Change, 29: 113-159. Granovetter M (1985) Economic action and social structure: The problem of embeddedness. American Journal of Sociology, 91: 481-510. Groenendijk N (1997) A principal-agent model of corruption. Crime, Law/ Social Change, 27: 207-229. Hamilton GG (1994) Civilizations and the organization of economics. In: Smelser N & Swedberg R (eds.), The Handbook of Economic Sociology. Princeton. Heberer T (2001) Korruption als globales Phanomen und seine Auspragungen in Ostasien: Korruption und Korruptionsdiskurse. Project Discussion Paper, Institute for East Asian Studies/East Asian Politics, Duisburg. Heilmann SI Gras & Kupfer K (2000) China's politisch-okonomisches Schattensystem: Schmuggelnetzwerke und der Beitritt zur WTO. China aktuell, 29(7): 769-784. Hobbes T (1651) Leviathan, London, 1651; reprinted 1985 by Penguin Classics, London.

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Hsing Y-T (1998) Making Capitalism in China: The Taiwan Connection, New York-Oxford. Transparency International. In http://www.transparency. org/documents/cpi/2001/cpi2001.html, download on 10.07.2001. Klitgaard RE (1988) Controlling Corruption. London. Krueger AO (1974) The political economy of the rent-seeking society. The American Economic Review, 64: 291-303. Krug B & Polos L (2000) Entrepreneurs, enterprises, and evolution: The case of China. Presented at The Annual Meeting of the International Society for New Institutional Economics, Tubingen, September. Kwong J (1997) The Political Economy of Corruption in China. London, Armonk. Lee PN-S (1991) Bureaucratic Corruption during the Deng Xiaoping Era. Hong Kong Institute of Asia-Pacific Studies: HKIAPS Reprint Series, No. 7, Hong Kong. Mauro P (1995) Corruption and growth. Quarterly Journal of Economics, 110(3): 681-712. Mummert U (1995) Informelle Institutionen und okonomische Analyse. Discussion Paper, Max Planck Institute for Research into Economic Systems, Jena 08/95. Nee V (2000) The role of the state in making a market economy. Journal of Institutional and Theoretical Economics (JITE), 156: 64—98. Ney JS (1967) Corruption and political development: A cost-benefit analysis. The Political Science Review, 51: 417-423. NoonanJTJr (1984) Bribes. New York. North DC (1984) Transaction costs, institutions, and economic history. Journal of Institutional and Theoretical Economics, 140: 7-17. North DC (1990) Institutions, Institutional Change and Economic Performance. Cambridge. Posner RA (1980) A theory of primitive society, with special reference to law. Journal of Law and Economics, 23: 1-53. Rawski TG (1999) Reforming China's economy: What have we learned? The China Journal, 41: 139-156. Reja B & Tavitie A (2000) The Industrial Organization of Corruption: What Is the Difference in Corruption between Asia and Africa? Presentation to the Annual Conference 2000 of the International Society for New Institutional Economics, Tubingen, September. Root H (1996) Corruption in China. Asian Survey, 36(8): 741-757. Rose-Ackermann S (1978) Corruption: A Study in Political Economy. New York.

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Rose-Ackermann S (1999) Corruption and Government: Causes, Consequences, and Reform. Cambridge. Sandler T & Tschirhart J (1997) Club theory: Thirty years later. Public Choice, 93: 335-355. Steidlmeier P (1999) Gift giving, bribery a n d corruption: Ethical managem e n t of business relationship in China. Journal of Business Ethics, 20: 121-132. Tanzi V (1995) Corruption, arm's-length relationships, a n d markets. In: Fiorentini G & Peltzman S (eds.), The Economics of Organized Crime. Cambridge, p p . 161-180. Tao Z & Zhu T (2001) An agency theory of transaction without contract enforcement: T h e case of China. China Economic Review, 12: 1-14. Wang H (2000) Informal institutions a n d foreign investment in China. The Pacific Review, 13(4): 5 2 5 - 5 5 6 . Wank DL (1999) P r o d u c i n g property rights: Strategies, networks, a n d efficiency in u r b a n China's nonstate firms. In: Oi J C & Walder AG (eds.), Property Rights and Economic Reform in China. Stanford. Weber Max (1904/05) DieprotestantischeEthih und der »Geist« des Kapitalismus. Reprint of the second e x p a n d e d edition of 1920, B o d e n h e i m 1993. White G (1996) C o r r u p t i o n a n d the transition from socialism in China. Journal of Law and Society, 23(1): 149-69. Williamson O E (1985) The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting, L o n d o n . World Bank (1992) China: Reform and the Role of the Plan in the 1980s, Washington, A World Bank Country Study. Yan Y (1996) T h e culture of Guanxi in a n o r t h China village. The China Journal, 35: 1-25.

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Chapter 12

The Nature of Corruption Hidden in Culture: The Case of Korea

yong-Lin Moon and Gary N McLean

Introduction T h e elimination of corruption has b e e n a major policy target for many Asian leaders, especially since the e n d of the second World War in 1945. Since that time, many Asian countries have striven to establish western style democracy in their politics a n d economy. Only a few countries, however, have m a n a g e d any level of success in accomplishing even a semblance of that goal — J a p a n , Singapore, Taiwan, H o n g Kong, a n d South Korea. But their successes have b e e n only in relative terms. In fact, it might be m o r e accurate to say t h a t they have b e e n s o m e w h a t m o r e effective in fighting corruption than o t h e r Asian countries. Believing that n o country can develop economically a n d socially with corruption alive in its midst, most Asian countries continue to fight corruption.

The Problem South Korea may be o n e of the most troubled of these countries about its efforts to curb corruption because there is a realization that they might lose what they have achieved economically unless they can curb corruption successfully. South Korea is small in size

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but a giant in world trade, standing 13 th in international trade. Its GDP is about 15 th in absolute amount among 170 countries (National statistics office, 2000). Experiencing the exchange monetary crisis in 1997 (alias "IMF crisis of 1997"), Koreans learned that they need to adopt global standards of action (open, fair, rational, and law abiding) if they want ongoing economic development. The fight against corruption has a long history in Korea. For example, "anticorruption" was the main and principal cause for the coup d'etat in 1960 by Gen. J. H. Park. The two recent presidents (Kim Y. S., 1993-1998, and Kim D. J., 1998-present) promulgated a strong anticorruption policy and campaigned against corruption. Both presidents established a Presidential Committee on Anticorruption and gave them plenipotentiary power. But despite these efforts, few people would conclude that corruption has diminished, or even that the two presidents were, themselves, free of corruption (A question of revenge, 2001). Some blame the failure of the anticorruption efforts on Confucianism. They say that Koreans are damned to be corrupt as long as they are immersed in Confucianism: "We can survive only without Confucius" (Kim, 1999). Some say that Koreans should return to the true basics of Confucianism, which they have lost since the early 20 th Century: "We can survive only with Confucius" (Choi, 1999). These are the claims of two competing bestsellers. Several thousand years after his death, Confucius is emerging as both a culprit and a possible savior. Most scholars and journalists do not subscribe to either extreme position. Corruption is a multifaceted phenomenon. It comprises many factors and components: socio-economic, cultural, politicosystematic, bureaucratic-administrative, psychological, and so on. This multifaceted aspect of corruption must be taken into account if anticorruption efforts are to succeed. Despite the widespread awareness that the principal enemy of progress is corruption, and South Korea's use of various measures to counter corruption, to date, they have ended in vain. One source reporting the extent of the perception of corruption has been provided by annual surveys conducted by Transparency

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International (TI). According to TI, Korea's perceived level of corruption declined some from the early 1980's to the late 1980s (Transparency International, 2001), and, by 1995, ranked 27 out of 41 countries (Transparency International, 1995). By 2000, Korea was ranked 48 th of 90 countries. At the same time, Japan ranked 23 rd , Taiwan, 28 th , and China, 63 rd (Transparency International, 2000). (For a history and explanation of the TI scales, see Galtung & Pope, 1999.) The Questions to be Addressed Why have the efforts had so little effect? The answer lies in a careful analysis of the nature and character of corruption. Of course, corruption has both general and specific features that lie in culture. While the general features of corruption may be common among cultures, that is not the focus of this chapter. Rather, we will focus on the specific and idiosyncratic features of corruption in Korea. The primary focus, then, will be on the following three questions: 1. What are the cultural factors hidden in corruption in Korea? Answers to this question lie in historical and ideological analysis. 2. Why are Koreans inclined toward corruptive practices when it goes against their high level of education and enlightenment? This question calls for practical and psychological analysis in human relations and business. 3. What alternative approaches exist for anticorruption in Korea? Social and political system changes, as well as education and cultural environment changes, will be examined in answering this question. Approaches to Answering the Questions To answer these questions, we use primarily a review of the literature. We then use our own experiences within the Korean culture to outline a systematic and comprehensive approach to address the problems of corruption in South Korea.

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Cultural Factors Hidden in Corruption: Historical and Ideological Analysis Koreans have long lived in a mixed culture of Buddhism, Taoism, a n d Confucianism. Most of the kingdoms in Korea's 5,000-year h i s t o r y s p a w n e d a n d s u p p o r t e d o n e of t h o s e r e l i g i o n s o r philosophies. For example, each of the most recent dynasties of Koryo (935-1392 AD) a n d Chosun (1392-1910 AD) h a d its own state religion a n d exerted considerable effort to propagate it a m o n g its populace. In the era of Koryo, Buddhism prevailed for m o r e than 400 years so that everything related to Buddhism was respected a n d valued. With the overturn of Koryo, the Chosun dynasty took the stage with a strong emphasis o n the philosophy of Confucianism, which b e c a m e t h e state p h i l o s o p h y . T h e f o u n d e r s of t h e k i n g d o m vehemently rejected the Buddhist tradition of Koryo. From then on, everything b e g a n to change. Buddhist temples a n d monks were s h u n t e d off to the mountains a n d things Confucian were treasured a n d valued. Confucianism exerted its d o m i n a n c e for over 500 years until the beginning of the 20 t h Century. T h e legacies of 400 years of Buddhism a n d 500 years of Confucianism have each mixed with Taoism and, as a result, developed many distinctive folk beliefs. Thus, Korea, as the "Land of M o r n i n g Calm," so n a m e d by E u r o p e a n visitors in the 18 t h Century, has b e e n steeped in a mixture of Buddhism, Taoism, a n d Confucianism for m o r e than 1,000 years until recently. Therefore, the characteristics of Korean traditional values are better defined by the mixture of these three ideologies than by any o n e of them. Many scholars have indicated that Korea's traditional values reside in shamanism. O t h e r scholars (e.g., Choi Chi-won of Shilla Dynasty) have given it the p r o p e r n a m e , P o o n g Lyu (whose literal m e a n i n g is: Poong=wind, Lyu=stream or flow). But any indigenous n a m e indicating Korean traditional values as a whole is n o t yet widely accepted a n d used. Koreans generally u n d e r s t a n d Confucianism as indicating their traditional values as a whole. So Confucianism hereafter in this

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c h a p t e r is u s e d for t h e distinctive m e a n i n g of K o r e a n traditional values comprising the mixture of Confucianism, Buddhism, a n d Taoism. In spite of these values, however, "corruption has b e e n a serious p r o b l e m in South Korea since the sixteenth century" (Quah, 1999, p. 246). According to Tipton (1998), these values provided the elite with power, as, "from the lowest level to the highest, officials in effect purchased their offices with bribes, a n d t h e n spent their time in office attempting to r e c o u p their expenses a n d if possible turn a profit" (pp. 99-100). Tipton went o n to outline several efforts at reform t h r o u g h o u t the 19 t h Century, all of which failed because those in power, the elite, strongly resisted the reforms because of what they would have h a d to give u p . O n e response to the reforms was to bar foreigners from active involvement with the country, which, of course, e n d e d with the J a p a n e s e occupation. Efforts at a full-scale i n t r o d u c t i o n of w e s t e r n d e m o c r a c y a n d civilization into Korea occurred after World War II (1945), initially t h r o u g h the C o m m i t t e e for the Preparation of Korean I n d e p e n d e n c e , resulting in the establishment of the Korean People's Republic. T h e Russians in the n o r t h accepted the party a n d its reforms, b u t the US military refused to recognize it, thus destroying early efforts at democracy in the south (Tipton, 1998). This struggle continued as two governments emerged in Korea, leading, ultimately, to the Korean War. Early Korean leaders, such as Rhee a n d his Liberal Party, in spite of appearances at democracy, still relied heavily on control, power, fraud, a n d bribes in governing the country (Tipton, 1998). N o subsequent president, to date, has escaped accusations of widespread corruption. T h e same p o o r reputation has tarnished o t h e r political leaders a n d many major businesspersons. Yoo (2001) r e p o r t e d President Kim Dae-jung's analysis of the cause of the 1997 economic crisis as the lack of democratic accountability in Korea, which led to the close association between politicians and corporate leaders, and an economy dominated by the government and corruption. Those problems distorted market forces and weakened business and financial institutions, (p. 15)

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Thus, there have been fewer than 50 years of real struggle for democracy in South Korea. During that time, the populace, in particular, has begun to feel and experience ways of life other than their own, which they had cherished for 1,000 years; but the weight of 1,000 years is far heavier than 50 years. Although what we see now in Korea are the appearances of highly westernized cities, systems and people, what we actually feel and experience in Korea are the touch and smell of 1,000 years of tradition. In computer analogy, every hardware system of modern Korea is like that of western countries. But its software is not like theirs. The computer hardware systems are almost the same, but its operating systems are quite different. Just as an operating system of a computer can make its system more or less efficient, the culture of a country can make its societal systems work efficiently or not. It is apt, perhaps, that Hofstede described culture as "the software of the mind" (Hofstede, 1991, p. 4). Since the reestablishment of the Republic of Korea (1948) after World War II, Korea has been well equipped with the social systems of western democracy and a capitalist economy. As expected, parts of these systems have worked well, while others have not worked so well. Despite the miserable disaster of the Korean War and the severity of ideological confrontations between South and North Korea, Korea has still achieved a miraculous economic development. Korea has been quite optimistic that they would become a member of OECD first and then emerge as a member of the G9 club of advanced countries. In 1997, however, to their dismay, the Korean economy was hit by an unexpected shortage of foreign exchange and collapsed completely. This disaster gave Koreans a pessimistic outlook for their future. Is it possible for the existing socio-political and economic systems to guarantee sustained development? Answers from most Koreans were negative. Many Koreans understand that the 1997 economic crisis was a natural consequence of the system and its surrounding environment that spawned irrationality, unfairness, and corruptibility. Many Koreans seem to be paying more

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attention to corruption now, seeing it as o n e of the major culprits of the 1997 IMF crisis. Since the crisis, the climate of "no m o r e development without sweeping o u t corruption" has prevailed. This climate h e l p e d launch a strong anticorruption drive as a political a g e n d a a n d also a civil m o v e m e n t by high-level administrators, including President Kim Dae-jung. Despite a strong will a n d sophisticated systematic measures, the a n t i - c o r r u p t i o n drive seems n o t to have b e e n very successful. Why? Two wheels s u p p o r t c o r r u p t i o n : i n c o m p l e t e systems a n d internalized cultural values. These two wheels drive the cart of corruption anywhere m o n e y a n d favors are. To disable the cart of corruption, b o t h of the wheels must be r i p p e d off. Reforming systems a n d strengthening law e n f o r c e m e n t must be a m o n g the powerful antidotes used, b u t they are n o t sufficient remedies for corruption. T h e history of anti-corruption efforts a r o u n d the world proves this case so far. In Korea, it seems that every kind of systematic a p p r o a c h to anticorruption has b e e n tried, except for a streamlined a p p r o a c h to revitalizing internalized cultural values. While socio-political a n d economic systems work best without corruption in an e n v i r o n m e n t that favors rationality, fairness, a n d openness, such environments are n o t g u a r a n t e e d by the systems themselves, b u t by the people living in a n d with t h e m . These values have flourished m o r e in western-European traditions, leading to the lowest levels of corruption in the world. But such values d o n o t exist to the same extent in o t h e r cultures. In Korea, the values most cherished for m o r e than 1,000 years have b e e n filial piety a n d loyalty to known people. Until j u s t 100 years ago, Koreans lived in a Confucian society in which filial piety enjoyed utmost priority a n d overrode any o t h e r value. An episode illustrates this dramatically. In the Seoul area in the 19 t h Century, a Korean general of a militia corps, gathered from all over the country, confronted an invading army from a foreign country. W h e n the two sides were o n the verge of decisive fighting, the general was notified of the death of his mother. With the u n a n i m o u s advice of his staff, h e a b a n d o n e d everything a n d went back for h e r funeral. As a result, the war e n d e d as a complete loss without the c o m m a n d

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of the general. Nevertheless, the general has b e e n h o n o r e d as a p a r a g o n of filial piety to this day. T h e p r o b l e m with corruption is described in Myrdal's (1968) Asian Drama, a real d r a m a in which western values of rationality, fairness, a n d openness engage in a war against Confucian values of filial piety a n d loyalty to known people in Korea. W h o wins? It's a close battle. T h e IMF crisis in 1997 showed clearly that rationality, fairness, a n d openness were still greatly h a m p e r e d by traditional values of Confucianism, at least in the economic a n d business sectors. Kim (1998a) outlined the continuing widespread corruption within Korea, from the white envelopes containing cash (ch'onji) passed o n to elementary school teachers to insure good grades; "young lecturers to get j o b s at colleges; drivers to avoid speeding tickets" (p. 52); e n t r e p r e n e u r s to public servants; export inspectors; police officers a n d fire fighters; "officials at tax a n d p a t e n t offices a n d o t h e r government agencies" (p. 53); a n d even senior b a n k i n g officials. Corruption in Korea remains rampant. While Confucian values may be good in their own right, they generate serious problems when they override rationality, fairness, a n d openness in the public sector a n d in businesses. In those arenas, western values have b e c o m e global standards of c o n d u c t that leave little r o o m for Confucianism to override them. Although some scholars, like Leff (1964), Lui (1996), a n d Nye (1967), have acknowledged positive effects from some [optimal] level of corruption, they provided very limited explanation for some of the u n d e r d e v e l o p e d countries in Asia (Kim, 1998b). Korea is now in the stage of economic development in which it must keep step with global standards of rationality, fairness, a n d openness. Koreans should n o t mix these two sets of values, at least in economic a n d business sectors. However, although Koreans are flatly determ i n e d to expel corruption, the culture that they treasure, cherish, a n d are p r o u d of is spawning corruption. Koreans seem to be in a dilemma, as described in the Bible in Matthew (26:41): "the spirit is willing, b u t the flesh is weak." This d i l e m m a is vexing, especially because of its a p p r o a c h a p p r o a c h nature. T h e two c o m p e t i n g value sets are b o t h worth

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keeping. To give u p Confucian values for a n o t h e r set of values is n o t desirable and, most importantly, n o t possible because it means giving u p the Korean way of life. So the dilemma must be solved t h r o u g h a win-win strategy, n o t t h r o u g h a zero sum strategy. This calls for compromising the weaknesses with the strong points of the o t h e r value set a n d co-existing. Confucian values may have merit in the personal, familial, a n d in-group domains of life (though even these are now being challenged by some segments of the society, e.g., the relation between m e n a n d w o m e n ) , b u t they have drawbacks in the public d o m a i n of life. Western rationality a n d fairness have merits a n d drawbacks in different domains of life from Confucianism. Therefore, it is time to search for the wisdom to discern the good a n d the bad of Confucianism according to the d o m a i n of life so that we encourage the good a n d delete the bad. In the next section, the n a t u r e of Confucian values will b e discussed in m o r e detail with regard to corruption. Discussion of the possibility of anticorruption measures in changing culture/values will follow.

Psychology of Corruption in Human Relations and Business While there are ten c o m m a n d m e n t s in the western Judaeo-Christian tradition, there are three-five c o m m a n d m e n t s in Confucian tradition. T h e threes are the core catechism of Confucianism a n d have d o m i n a t e d the everyday lives of the Korean people for h u n d r e d s of years. T h e threes indicate that there are three imperative principles given to a n d operating between subjects a n d kings, between sons a n d fathers, a n d between wives a n d husbands. T h e fives refer to five distinctive virtues given to a n d operating between the following categories of h u m a n relations: loyalty between kings a n d subjects, filial piety between sons a n d fathers, affinity between friends, rank a n d o r d e r according to age difference, a n d status distinction between m e n a n d w o m e n (e.g., a woman o u g h t to obey h e r father before marriage, h e r h u s b a n d after marriage, a n d h e r son after h e r mate's d e a t h ) .

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The most striking difference between Confucian commandments and those of Judaism and Christianity is the detailed definition of human relations activities. While Judaeo-Christian commandments describe the content of virtues and their priorities, Confucian commandments depict the form of human relationships and their priorities. The form of human relations prevails ahead of the content of the virtues at issue. For example, in the Korean culture, honesty is subject to the pattern of human relations at stake. That is, the value of being honest has a different meaning according to the people involved in a Confucian society. In both the west and the east, when being honest does harm to one's family, honesty generally becomes a lower priority. But it is a matter of extent. In Confucian tradition, honesty is much more likely to be set aside for the benefit of the quality of human relationships. The value or importance of virtues such as truth, honesty, fairness, and rationality are subject to or depend upon the quality of human relationships as prescribed by the three-five commandments. All of the three-five commandments, of course, do not survive as strong values today. Some are old fashioned and have been, or are being, discarded, while some are still rampant. Loyalty to one's superior and the strict distinction between husbands and wives are thought by some to be old-fashioned. But filial piety among family members, affinity among friends or known people, and strict rank-order according to age difference continue to be strongly influential in every aspect of social life among Koreans today. Insidiously, all of the three-five commandments still reside deep in Korean unconsciousness. Whenever they have a chance to leak out, they erupt, no matter how irrational and absurd it seems. Here's an example: A former president of Korea in the 1980's was accused of corruption by using unlawful power. A huge amount of money had been collected from entrepreneurs and deposited in his bank account. A public hearing was held in the Korean Assembly (the Korean Congress). Many former staff members close to the former president were called and questioned. Most of them tried to tell the truth so that their remarks were not supportive of their superior. Only one person (alias Mr. A) among the staff refused to

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make any c o m m e n t that seemed harmful or negative to his former superior, regardless of the truth. After the hearings, h e b e c a m e like a Triton a m o n g minnows, while the others were r e g a r d e d as betrayers b e n t o n saving only their own lives. T h e generally sympathetic sentiment of the Korean populace was directed n o t to the people who told the truth b u t to the person who stuck to Confucian principles. Truth came after loyalty a n d affinity. Mr. A was seen as a paragon of loyalty. It was said that Mr. A was served wine free of charge by owners or waiters who a p p l a u d e d him. N o b o d y in Korea denies t h e i m p o r t a n c e of t r u t h , honesty, fairness, a n d openness. And nobody in Korea denies the distinctive features of the Korean way of life subsumed in Confucian values. It is a real Korean dilemma between the two approach-approach values. Both sets of virtues are simultaneously valuable, b u t often in a Korean's life, they are in conflict. Truth is good in its own right. But w h e n telling the truth harms one's family, friends a n d superiors, a Korean feels obliged to speak against the truth to survive in the Confucian society. Although there are some differences in degree, Koreans, Japanese, a n d Chinese experience the same dilemma. Confucian values prevent the western values of rationality, justice, fairness, a n d openness from fully b l o o m i n g in real life settings. Some additional examples will illustrate this. An apology for World War II crimes has n o t b e e n as easy for the J a p a n e s e as it was for the Germans. For the J a p a n e s e , an apology means recognition of their ancestors' faults a n d remorse for their actions. Such an apology would stimulate their d e e p consciousness of potentially defying their ancestors. Despite the evidence of many massacres, provision of comfort women, a n d the use of live h u m a n s in medical experiments, they have n o t m a d e a sincere apology. This is n o t understandable in terms of rationality, fairness, honesty, a n d openness. But the psychology of such a culture confines t h e m to self-contradiction. They are m o r e afraid of deceased ancestors than of live h u m a n beings' rational, just a n d fair d e m a n d s . These m o d e r n d e m a n d s are rational, just a n d fair, according to some, yet Confucian values override rationality a n d justice in J a p a n .

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H u m a n rights are at issue between China a n d western advanced countries. T h e basic idea of h u m a n rights is quite different between the West a n d the East. In western tradition, h u m a n rights originate from the assumption that all h u m a n beings are equal. But in Confucian tradition, h u m a n rights originate from the assumption that h u m a n beings are h u m a n only if they act like h u m a n s . It is n o w o n d e r that h u m a n s a n d animals are n o t h i n g b u t different points on the same c o n t i n u u m of life in Buddhism, Taoism, a n d Shamanism. T h e indigenous concept of h u m a n rights in China impedes their acceptance of the western a n d seemingly rational concept of h u m a n rights. What may seem to be outright violation of h u m a n rights in the eyes of westerners may seem to be n o r m a l social policy in the eyes of the Chinese. Traditional values struggle against western values of rationality in China, too. Viewed from this standpoint a n d in this context, corruption can be defined as a p h e n o m e n o n in which Confucian values override rationality, fairness, a n d openness in public activities, such as politics, business, a n d public administration. Confucian values may n o t be a problem in private sectors, such as in friendship a n d family relations. In fact, it might enrich the sentiment a n d m e a n i n g of life. But when Confucian values are influential in business a n d public affairs, favoritism a n d partiality prevail. Confucian values are m o r e influential in Korea than in o t h e r Asian countries. As a result, they enjoy d e e p a n d rich sentiments a n d security within the tight network of family, friends, a n d many private, i n - g r o u p systems. O n t h e o t h e r h a n d , they p r o d u c e favoritism a n d partiality, thereby e n d a n g e r i n g a n d u n d e r m i n i n g public business. It is necessary, therefore, n o t to mix the two sets of values by drawing a line a r o u n d the private a n d public domains. This may be an effective antidote for corruption in Korea.

Agenda for Anticorruption: Changes in Systems and Culture Before a n d after the 1997 IMF Crisis in Korea, there were a b u n d a n t discussions a n d controversies o n the n a t u r e of c o r r u p t i o n a n d anticorruption measures. T h e most serious a n d interesting a r g u m e n t

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was o n the role of Confucianism relative to corruption. A young professor of Chinese classics (Kim, 1999) attacked Confucianism as a major culprit e n d a n g e r i n g overall societal d e v e l o p m e n t , including corruption, in his best-selling book. In opposition to his argument, a Confucian (Choi, 1999) from the National Association of Confucians wrote a b o o k criticizing t h e y o u n g professor's position. T h e two authors were invited to many TV talk shows a n d debate programs. T h e c o n t r o v e r s y gave m a n y K o r e a n s a c h a n c e to t h i n k a b o u t what Confucianism does m e a n to Koreans, especially in this m o d e r n time. Like Hamlet's question, "To be or n o t to be?" Koreans are facing a very serious q u e s t i o n : "To k e e p or n o t to k e e p Confucianism?" Koreans have asked such big questions three times over the last 1,000 years. T h e first was at the establishment of the Chosun dynasty (1392 AD) after the overthrow of 400 years of the Koryo Kingdom. At that time they asked: What does Buddhism m e a n to Korea? After many struggles, they discarded Buddhism as a state religion a n d tookup Confucianism, instead. Confucianism t h e n prevailed for m o r e than 500 years. T h e second was at the time of the first landing of Christianity a r o u n d 1784 d u r i n g the Chosun dynasty. Some Confucians who were the first to be versed in Christianity began to ask a serious question: What does Christianity m e a n to Korea as an alternative to Confucianism? T h e defiant responses p r o d u c e d tens of thousands of martyrs. Confucianism did n o t fall. But t h r o u g h these controversial events, Christianity settled down in the Korean peninsula a n d can now boast the greatest n u m b e r of Christians c o m p a r e d with China a n d J a p a n . T h e controversy, t h o u g h it seemingly failed at that time, has c h a n g e d the society greatly. T h e third is now at the b e g i n n i n g of the 21 s t Century: Will Korea take off to b e c o m e a new m e m b e r of the advanced countries or r e m a i n as it is now? W i t h o u t a d o p t i n g global standards of conduct, there is n o way to move into the company of advanced countries. O n e of the most perplexing obstacles to the adoption of global standards of c o n d u c t lies at least partly in the attributes of

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Confucianism. T h u s people have b e g u n to raise the question: What does Confucianism m e a n to Koreans who have an imperative of adopting global standards of conduct? Just as previous challenges to Confucianism b r o u g h t a b o u t meaningful change, how this question is answered will also bring about significant change, n o matter what the results are. W h i l e t h e c o n t r o v e r s y o n C o n f u c i a n i s m is n e c e s s a r y a n d worthwhile, an either-or decision a p p r o a c h is n e i t h e r desirable n o r possible. First, Confucian values with their merits a n d demerits c o m p a r e d with western values have b e e n in place for nearly 1,000 years. Eliminating t h e m now would elicit a fundamental loss of Korean identity; so the focus of the controversy should b e o n removing its demerits while reinforcing its merits. Second, from past experiences, it is almost impossible to trade the Confucian value system with another. Because Confucianism constitutes the flesh a n d skeleton of Korean culture, it could be quite dangerous to p r u n e o u t some Confucian values. The solution to the controversy of Confucianism should be sought within the framework of coexistence of eastern a n d western values. In history, two kinds of coexistence between the East a n d the West have b e e n attempted. Confronting western civilization's onslaught in Asia at the t u r n of the 19 t h Century, China a n d J a p a n n e e d e d a m o t t o for their populace with guidelines o n how to deal with the totally different t h o u g h t a n d culture. T h e Chinese slogan was, "Chinese body with Western function," while the Japanese slogan was, "Eastern m i n d with Western technology." These slogans suggest that they tried to a d d western values to their existing style of t h o u g h t a n d values. Maybe, thanks to the slogan, J a p a n succeeded in keeping its traditional values a n d culture, while making the best use of western technology. Koreans survived the tumultuous era of the 19 t h a n d 20 t h centuries without any such slogan. Now it is time for t h e m to agree u p o n such a slogan to overcome the conflict between Confucianism a n d western values, such as: "Confucian being with Western business." While Koreans would observe Confucian values in private life, such as in character-building a n d family a n d h u m a n relations, they would

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do public work and business strictly within global standards of conduct. T h e slogan provides a guideline that should make a clear distinction between the two domains. For the slogan to m e a n s o m e t h i n g helpful for Koreans in o v e r c o m i n g t h e conflict b e t w e e n t h e two value sets, a social m o v e m e n t by citizens' N G O groups is essential to encourage people to use the appropriate value system in the appropriate context. With this approach, the quality of their life a n d their economic development could b o t h be achieved. D o u b t may be raised concerning w h e t h e r b o t h value systems can be carried a n d m a d e to work within a person according to the d o m a i n in which they are involved. Many moral psychologists have found that h u m a n s can use different m o d e s of moral reasoning a n d standards according to the life d o m a i n they confront (Nucci, 2001; Turiel, 2000). Another d o u b t may be from a social engineering point of view: How can we propagate the motto, "Confucian being with Western business"? Education, including b o t h school- a n d work-based, a n d civic m o v e m e n t a n d campaigns are the means to such propagation. As the slogan includes social issues, values choices, and decision-making processes, a values clarification approach (Simon, 1985; Kirschenbaum, 1977) or Kohlberg's Dilemma Story A p p r o a c h (Higgins, Kohlberg & Power, 1991) may be worthwhile to try. T h e r e are o t h e r things that might be d o n e , especially within the context of lifelong education, b o t h in the community a n d in the workplace. Some possible solutions include: •

Courses could be developed a n d offered o n western values a n d ethics to help adults u n d e r s t a n d what the transition to this mix of values will m e a n for t h e m a n d how they will operate within the constructs of the new systems. • Systems need to be put in place to hold politicians, business people, workers, labor officials, a n d others in positions of leadership accountable for acting according to the new system of values (McLean, 2001).

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• Just as Transparency International annually estimates the perceived corruption of countries, the government of South Korea might well establish an institute that ranks the perceived corruption of the chaebols (the major conglomerate corporations in Korea), politicians, a n d o t h e r leaders. Awards might well be m a d e to those who have expressed in their lives the best of the western values in their public lives a n d the Confucian values in their private lives. • T h e media might well take a m o r e active role in holding u p as examples those whose lives best express the desired new values paradigm. While it has b e e n c o m m o n for the media to hold u p those who violate such values systems, it has b e e n unusual to hold u p models of those who exemplify the desired values systems. • Explicit a n d enforceable codes of ethics could be established for businesspeople a n d politicians. This might remove some of the ambiguity, such as the distinction between a gift a n d a bribe (Chang, C h a n g & Freese, 2001) that people often face within a transition to new ethical values. • An o m b u d s office c o u l d be established, with power to act i n d e p e n d e n t l y a n d be free from the influence of g o v e r n m e n t officials. Anyone could file a complaint with the o m b u d s office, with the r e q u i r e m e n t that an investigation be m a d e in a timely m a n n e r a n d charges b r o u g h t where evidence justifies it. T h e government must move away from its pervasive pursuit of political a n d economic regionalism, with clear divisions between the East a n d the West of South Korea (Ahn, 1999). T h e same is true sectorally. Focusing economic power in die hands of 30-some chaebols is "inefficient a n d inequitable" (p. 87). Until all people feel as if they are equally treated within the law a n d within the political a n d e c o n o m i c life of the country, c o r r u p t i o n or the p e r c e p t i o n of corruption will remain powerful within Korea. A very interesting idea takes advantage of the high level of Internet access in Korea. O n e group, Citizens Solidarity for General Elections, has targeted politicians who take bribes, violate h u m a n rights, or are incompetent, and has posted their names on a widely accessed website.

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T h e political parties are paying attention, with the expectation that the site will influence who parties p u t forward as their candidates in the next election (Weaving a web..., 2000). T h e index that measures the perception of corruption — Transparency International — suggests, in its title, a n o t h e r requirem e n t for the elimination of corruption — transparency. T h e m o r e transparent transactions are, the m o r e difficult it is to hide them, a n d the less likely it is that corruption will occur (Kagan, 1998). Thus, rules a n d regulations creating systems that encourage transparency would be very helpful in minimizing corruption in South Korea. T h e power of the labor unions may well be a strong influence o n forcing the elite to practice in an ethical (i.e., non-corrupt) way, especially if they can convince the middle-class of the sincerity of their efforts a n d gain their support a n d sympathy (Ravich, 2000). Kim (1998a) m a d e a n u m b e r of a n t i c o r r u p t i o n suggestions. Basically, h e suggested that there m u s t b e fewer incentives for corruption, fewer opportunities for corruption (including "reduction of g o v e r n m e n t size a n d regulation, d e m o c r a t i z a t i o n of policymaking, a n d reduction of discretion" (pp. 5 7 - 5 8 ) ) , a n d increased risks if corruption is practiced, t h r o u g h increased detection a n d increased penalties. In the end, the elimination of corruption is basically a question of leadership. T h e most effective anticorruption intervention is to have leadership that is committed to integrity, equality, transparency, openness, a n d democracy at all levels, in all regions, in all sectors, a n d a m o n g all classes. If Koreans will elect a president a n d an assembly with such a c o m m i t m e n t , who can a n d will follow through on this commitment, then Korea may truly expect to eliminate corruption.

Conclusion T h e struggle to overcome corruption to free the Republic of Korea to regain its j o u r n e y toward economic development will be neither smooth n o r fast. It will require a gradual, evolutionary process of

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massive cultural change, widely supported by the populace a n d those in leadership. Without such a commitment, the negative consequences of corruption will c o n t i n u e to i m p e d e South Korea's economic, political, a n d moral development.

References Ahn KS (1999) Income distribution, regionalism and sociopolitical instability in Korea. In: Minami R, Kim KS & Falkus M (eds.), Growth, Distribution and Political Change: Asia and the Wider World. New York, St. Martin's Press: pp. 67-90. Chang CS, Chang NJ & Freese BT (2001) Offering gifts or offering bribes? Code of ethics in South Korea. Journal of Third World Studies, 18(1): 125-139. Choi BC (1999) We Can Survive only with Confucius (in Korean). Seoul, SIA Publishing. Galtung F & Pope J (1999) The global coalition against corruption: Evaluating transparency international. In: Schedler A, Diamond L & Plattner MF (eds.), The Self-Restraining State: Power and Accountability in New Democracies. Boulder, CO, Lynne Rienner Publishers, pp. 257282. Higgins A, Kohlberg L & Power C (1991) Lawrence Kohlberg's Approach to Moral Education. New York, Columbia University Press. Hofstede G (1991) Cultures and Organizations: Software of the Mind. London, McGraw-Hill. Kagan R (1998, March 9) What Korea teaches: Models, principles, and the future of democracy in Asia. The New Republic, 218(10): 38-47. Kim BS (1998a) Corruption and anticorruption policies in Korea. Korea Journal, 38(1): 46-69. Kim BS (1998b) Corruption and risk society. Magazine SA Sang (Seoul Social Science Academy): 46-68. Kim KI (1999) We Can Survive only without Confucius (in Korean). Seoul, BADA Publishing. Kirschenbaum H (1977) Advanced Value Clarification. New York, Lawrence Erlbaum Associates. Leff NH (1964) Economic development through bureaucratic corruption. American Behavioral Scientists, 8(3): 8-14.

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Lui FT (1996) Three aspects of corruption. Contemporary Economic Policy, 14(3): 26-29. McLean GN (2001) On human resource development and human resource management in the chaebols of South Korea in response to a national economic crisis. In: Kidd JB, Li X & Richter F-J (eds.), Advances in Human Resource Management in Asia. New York, Palgrave, pp. 61-79. Myrdal G (1968) Asian Drama. New York, Pantheon Books. National Statistics Office (2000) Korea in Statistics (Chapter 14). Seoul, National Statistics Office, Republic of Korea (http://www.nso.go.kr). Nucci LP (2001) Education in the Moral Domain. New York, Cambridge University Press. Nye JS (1967) Corruption and political development: A cost-benefit analysis. American Political Science Review, 61 (2): 417-427. Quah JST(1999) Combating corruption in South Korea and Thailand. In: Schedler A, Diamond L & Plattner MF (eds.), The Self-Restraining State: Power and Accountability in New Democracies. Boulder, CO, Lynne Rienner Publishers: pp. 245-256. A question of revenge: Corruption claims in South Korea (2001, January 27). The Economist (US): 5. Ravich SF (2000) Marketization and Democracy: East Asian Experiences. Cambridge, UK, Cambridge University Press. Simon S (1985) Value Clarification. New York, Dodd Mead & Co. Tipton FB (1998) The Rise ofAsia: Economics, Society and Politics in Contemporary Asia. Honolulu, University of Hawaii Press. Transparency International (1995) Ranking 1995. http://www.gwdg.de/ ~uww/rank-95html Transparency International (2000) The 2000 Corruption Perception Index. See http://www.gwdg.de/~uww/2000/Data.html Transparency International (2001) Historical Comparisons. See http:// www.gwdg.de/~uww/histor.html Turiel E (2000) Culture, Thought, and Development. New York, Lawrence Erlbaum Associates. Weaving a web to catch the corrupt (2000, February 7). Business Week: 58. Yoo TH (2001) Democracy and market economy in Korea. Journal of Third World Studies, 18(1): 13-19.

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Chapter 13

Combating Corruption in Thailand: A Call to an End of the "White Buffet"

Maneewan Chat-uthai and Gary N McLean

Introduction Corruption is a global phenomenon and has been widespread in many societies, and corruption can happen in every circle. This chapter aims at providing a comprehensive overview of corruption in Thailand, including its root causes and current landmark cases. As in other parts of the world, corruption in Thailand has become commonplace and can no longer be concealed from the public eye. The past few years have surfaced monumental corruption and scandals enacted by top government officials, military, police, local community, private business, public health, and even religious leaders. The 2000 Corruption Perception Index (Transparency International, 2000) has thus put Thailand in a trust status that is deteriorating from the 34 th rank (of 41 countries) in 1995 (Transparency International, 1995), to tied-for 60 th rank (of 90 countries) in 2000. Thai views of corruption are reflected in neat phrases used to describe the act of consuming the public wealth: "hot tea fees," "eating along the river tide," "gifts of good will," and the famous "white buffet" cabinet — referring to the highly-placed political figures who ganged up to loot the public treasury and trust. This chapter explores how the Thai public has accommodated existing corruption

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and examines the range of corruption that now exists. It also provides recommendations for anticorruption activities. Corruption Defined Generally, Thais have used the English word, "corruption," to describe the carrying-off of civic and national wealth, mainly by public officers. The Thai phrase for corruption is rather subtle — Chor Raj Bang Luang. "Raj" is the people, "Luang" is the public, "Chor" is cheating, and "Bang" is hiding or embezzlement. These four words when combined form the meaning of corruption: an act of cheating the people and embezzling public wealth. There is a clear distinction between taking the people's wealth (cheating) and taking the public wealth (hiding, embezzling), both of which are considered shameful within the Thai culture. Chor Raj is generally the act of taking away civic wealth, by either voluntary or forced bribery. Examples include gifts of goodwill and fees (the hot-tea fees) and threats and hassling hurdles put up by state officers leading to "civic offerings" (bribes) to speed up the government work process. Bang Luang refers to the act of taking away the public wealth a n d / or intercepting financial gains from reaching the public. Corruption in this sense, therefore, covers all acts of abusive use of state power leading to the restraining of public and civic interest. This is seen in the case of inflating the price of pharmaceuticals centrally procured by the ministry of public health. This causes the government to pay more for lower quality medical products that do the patient more harm than good. More importantly, corruption can be viewed on a cause-arousal and response basis involving key actors — the public and civic officials — with shared benefits/interest. For example, the construction of a new highway provides the opportunity for officials from the Department of Highway's Construction Division to award the work to the company that offers 'under-the-table' money or luxurious artifacts, such as a car or valuable appliances. In this case, the budget allocation for the new highway generates the opportunity for officials to ask for side benefits. Shared interest is seen from both sides — the giver and the receiver make profits through collaboration.

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The official facilitates the bid award, and the bidder gives tangible benefits in return. Similar to hand clapping, it needs two hands to accomplish its mission. In the world of corruption, it operates on the 'no demand, no supply' basis. If there is no need to get things done illegally or irregularly (no demand), there is no opportunity for people to offer assistance (no supply). Then, there is no need to abuse state power. Figure 1 displays this "corruption continuum."

/

|

CORRUPTION

ChorRaj: Cheating the citizens - take away public wealth

People sector

|

\

Bang Luang: Hiding from the king - take away public wealth

Public sector

Figure 1: Corruption continuum

Corruption stretches to both ends of the continuum. Corruption is not necessarily confined to public officers, but corruption can be collaborative and organized between the public and civic officials who join forces to enhance the group's interests with or without direct intention to inhibit the nation's interest. Corrupted government does not necessarily have to rob tangible public wealth. Misuse of office time, resources, and expertise can be included in the corruption category if its consequences involve the loss of public interest and opportunity. The Thai public is currently experiencing a paradox of "Corrupt but capable." Corruption has become sensational and has captured increasing public interest. Corruption in the new sense has somewhat altered from the traditional sense of shameful disgrace to the creatively organized behavior used to take away public interest and property.

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To a certain extent, the public is flexible in accommodating corrupted but capable officers. Their acts are seemingly acceptable as long as they do not swallow all the wealth. Figure 2 illustrates the frequent, diverse, and complex phenomenon of corruption in Thailand.

NATION'S WEALTH

- 5 CI £,

^AK

Key Shading indicates the dominant actor, having the major role Symbols O Private, individual; • Public officers; CI Traditional corruption: Private citizen and public officers (by performing or not performing their responsible roles/duties) take away the national wealth or deprive the nation of what it should receive; C2 Public officers take away civic wealth by performing or not performing their responsible roles/duties, e.g., bribery, illicit fees, patronage system, favoritism, privilege, unfair and unjust treatment, invasion of individual rights, protection of self interest in financial and non-financial terms; C3 Private/citizen use public power and wealth to increase their benefits or privilege, or protect self interest in financial and non-financial terms. Figure 2: Corruption model: Routing vs. looting of the nation's wealth

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Public wealth includes natural resources, human resource competency and expertise, and power and authority residing in the law. Private wealth includes heritage, human resource competency and expertise, production of goods and products, electoral votes, and fundamental civic rights. Routing of corruption can come from both the citizen and public, resulting in three major corruption categories: CI is the most frequently found type of corruption. It usually involves a large category of public wealth and public officials, as in the case of budgetary procurement for public goods and construction of infrastructure, concession of government resources/services, privatization of public enterprises, and regulatory control of specific business. As for the private citizen, concealment of one's wealth to avoid taxation can be considered as corruption, according to the Corruption Act, if the person also takes part in public administration. A landmark case was seen in the trial and indictment of two top parliamentary officers, which unveiled the new type of corruption in the Thai glossary of terms. For example, Article 293 of Thailand's Constitution requires public office holders to declare their wealth and debts before, and after, taking office. One MP and Minister of the Interior filed a false document of 45 million baht worth of debt. The NCCC investigated the issue and decided that the MP had violated Article 295 of the Constitution; subsequently, the MP has lost the court case and has been barred from holding office for 5 years. C2 concerns the misdemeanor of public officers or the abusive use of state power to enhance financial self-gain from private citizens. It does not necessarily decrease or affect the nation's wealth as in the case of accepting bribes or collecting fees (usually referred to as "under-the-table" transactions or "a gift of goodwill") to speed up the work process and state services. The prime actor of C2 is the public officer working in connection with the business people cum politicians. However, corruption can include the misuse of intangible public assets, such as public office hours; entitlement authority; professional image; trust and respect — as in the case of "moonlighting", or the use of public time for personal business

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a n d interest; or favoritism towards an a p p o i n t m e n t or displacement of public officials. T h e prime actor of C3 is the civic g r o u p that seeks the abusive use of state power for their self-interest. T h o u g h C3 is mainly performed by the private sector a n d primarily for the benefit of their business, it usually requires the collaboration of state officers to r e n d e r state power to h e l p increase or protect the illicit wealth of the groups. Corruption can take many forms. T h e use or n o t of the authority or power that consequently induces benefits for particular interest groups is sufficient for the indictment of corruption charges — such as performing as a guardian "Mafia" for certain businesses, or overlooking the known location of illicit gambling places. Another p o p u l a r form of corruption is also found in the case of buying electoral votes from eligible voters. Block votes are harvested when the incumbents arrange financial grants to the voters who, in return, vow to cast votes for h i m / h e r . T h e payment is usually d o n e as close to the actual election date as possible to m a k e the promise worth r e m e m b e r i n g . T h e night before the election is regarded as the "Howling Night," when money is spread t h r o u g h o u t the community. To d e t e r m i n e whether the promise has b e e n kept is n o t difficult. An estimate of block votes in a specific area will identify the n u m b e r of lost votes, leading to the possible tracing of who did a n d did n o t support the candidate. In sum, the determinants of corruption include the following: •

A recipient of benefits or gains, either in tangible or non-tangible form, including the gift of goodwill, covering what was received in the past a n d expected benefits in the future. • Illegitimate acts that are n o t consistent with the law, including the intention to violate state rules; abusive use of state power; use of force, threats, a n d m i s m a n a g e m e n t for self or g r o u p interest; voluntary withholding of state authority to suppress illicit activities; direct involvement in forgery a n d fraudulence; a n d shared interest a n d benefits i n d u c e d by the use of state power. • Such gains directly damage public interest a n d p u t the national stake in jeopardy.

Combatins Corruption in Thailand •

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T h e use of state power by responsible state officers to procure self or group interests.

Evolution and Forms of Corruption in Thai Society T h e historical roots of corruption can be traced back to 1352 AD in the reign of King U-thong of the Ayudhaya dynasty, when a penalty code was established to punish misbehaving royal servants. T h e code was practiced for 556 years before the criminal act overr o d e it in the reign of King Chulalongkorn of the Chakri dynasty. Corruption in those early days included the embezzlement of royal funds; misuse of feudal fees; abusive use of power to take away by force o t h e r people's wives, children, a n d slaves as one's own patrimony; a n d assistance given to criminals to escape prosecution. Penalized acts against the wrongdoers in the absolute monarchy era were generally severe a n d involved the constant threat of death a n d torture, i.e., b e h e a d i n g , cutting off of h a n d s a n d feet, being heavily chained, or being whipped by an iron r o p e . T h e legal code to suppress c o r r u p t i o n evolved significantly in 1932 at the j u n c t u r e of a major political change from absolute monarchy to constitutional democracy. T h e first draft of the Corruption Act BE (Buddhist Era) 2502 (equivalent to 1959 AD) was a n n o u n c e d a n d later developed to b e c o m e the Prevention a n d Suppression of Corruption Act in the Public Sector in BE 2518 (1975). It focused p r i m a r i l y o n t h r e e major g r o u n d s : c o r r u p t i o n by government officers, m i s d e m e a n o r acts by government officers, a n d irregularity of wealth acquisition. After the issuance of Thailand's constitution BE 2540 (1997), the Act against Corruption has b e c o m e institutionalized with the establishment of an i n d e p e n d e n t public office — the National Counter-Corruption Commission (NCCC), comprising the so-called magic nine, including n i n e commission m e m b e r s for nine-year terms of service. T h e NCCC acts as national prosecutors of corruption cases. Final rulings are to be deliberated by the Constitutional Court. L a n d m a r k cases of the NCCC include the termination of a top minister who was b a r r e d from politics for

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5 years a n d the recent indictment of a high profile politician o n the c o n c e a l m e n t of wealth a n d mishandling of property taxes. Across m u c h of Asia we find that interpersonal networking is the n o r m . This is called 'guanxi' in Mandarin a n d 'quan-xi' in Southeast Asia. As stated below, it is a 'special' relationship that involves h o n o r between the parties, b u t from its Confucian roots, automatically invokes cronyism and nepotism. These two aspects help support several forms of corrupt practices. "Quan-xi, which refers to a special relationship a m o n g (sic.) two persons or two parties in a network in Chinese, is an example of a potential source of corruption, t h o u g h a similar term has n o t b e e n explicitly included in the Thai (cultural) vocabulary" (Duby-Villinger, 2001, pp. 105-106). Another cultural source that supports corruption in the Thai society is the very strong power distance that makes it difficult, if n o t impossible, for subordinates to speak o u t against their superiors, allowing for inappropriate behavior to be overlooked in deference to the hierarchy. Power distance is o n e of five measures of culture offered by Hofstede (1980, 1991). Corruption is b o t h an art a n d a science that evolves constantly. Interestingly, it has taken many forms a n d becomes h a r d to detect. From the prime corrupter found mainly in public offices, corruption has now fallen into the h a n d s of business tycoons who successfully maneuver corruption to multiply their assets. From the traditional "hot tea money," businessmen have found a variety of deceptive techniques, as in the case of customs duty a n d export e x e m p t i o n fees, or in every legal loophole they can find. For example, while it is legal to award the bid to a contractor who meets certain rules, it is corrupt to write the specifications in such a way as to exclude certain contractors a n d pave the way for a particular contractor to get the contract. A second example also applies. Export credit exemption vouchers were filed for that can be used for i m p o r t tax exemption. T h r o u g h this channel, i m p o r t tax vouchers were sold to car importers who applied the vouchers to minimize the i m p o r t tax. Many car importers doubled their profits by falsely categorizing the car, i.e., by a d d i n g extra accessories to make the car qualify for lower tax charges. With respect to corruption, the "gang" is clever. They study

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all of the loopholes with the help of the customs officers. For instance, an 11-seat van is considered less luxurious than a 9-seat van. People who want a mini-van want to have m o r e seats than in a sedan, b u t still want to have m o r e luxury than in a n o r m a l mini-van — the 9-seat category, therefore, is subject to higher i m p o r t charges because it is luxurious. T h e importer of the 9-seat van, therefore, will add 2 'monkey seats' so they can file for the 11-seat category with a lower duty charge. After the van reaches the showroom, it is transformed back to an elegant 9-seat van that can b e sold at a h i g h e r price. A m o r e sophisticated corruption technique is seen in the case of concessions in the telecommunication industry in which monopoly rights were given to the b i d d e r with the highest bribe. Fierce competition in the business arena has intensified corruption, with abuses of state power b e c o m i n g a viable means to gain the cutting edge. T h e first burst of the bubble economy was seen in 1996 when the Bangkok Bank of Commerce collapsed with nearly US$3 billion nonp e r f o r m i n g p r o p e r t y loans. D o m i n o effects overtook the stock exchange, wiping o u t 48 finance/security companies, along with the trust a n d interest of foreign a n d domestic investors. T h o u g h weak bankruptcy/foreclosure laws h a d m u c h to d o with the plunging economy, corruption also contributed to make the crisis h a r d to recover from, a n d it paved new ways for an insider g r o u p to gain from this heavy loss. An aftermath of the crisis was the devaluation of the baht; a n d at that time the leakage of a cabinet resolution provided a n e n o r m o u s advantage for a g r o u p of businesses that h a d p u r c h a s e d h u g e amounts of dollars in advance, thereby doubling their assets overnight.

Analysis of Behavioral Patterns and Enabling Factors: A Common Path to Willing Bribery Corruption is a learned social behavior, similar to what B a n d u r a (1969) referred to as vicarious experience, an imitative behavior with consequences. This occurs especially w h e n imitative behaviors

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result in positive rewards or in the removal or prevention of aversive stimuli. As corruption leads to gains and enhancement of self-interests, either tangible or intangible, it is reinforced by its own consequences. T h e behavior is t h e n likely to be imitated or copied. In many instances, corruption has set an example of how to make an overnight profit, especially with n o hard evidence filed against the perpetrators, a n d thus n o p u n i s h m e n t . T h e r e is also an increasing tendency of acquittal if charges are filed since the public wealth is massive a n d often goes unnoticed. Without the disclosure of relevant officers, n o o n e can truly tell the m a g n i t u d e of damage caused by corruption. Vicarious experiences thus affect those who witness the event. W h e n corruption reinforces the ideal of getting rich quickly, there is an increasing tendency for others to follow the trail to attempt to emulate, or better, the early pioneers. Corruption still persists despite severe p u n i s h m e n t s because the e m b e d d e d practice has b e c o m e acceptable in the sub-culture. It has b e c o m e normative to pay 'hot-tea fees' to speed u p government service. T h e pathway to corruption is therefore ranged from voluntary, lured or forced by b o t h parties. T h e r e are cases that government officers are forced to take the bribe as b o t h negative reinforcement avoidance and positive reinforcement seeking. T h e analogy of "eating along the river tide" is applied in this case w h e n the big boss signals the green light to facilitate the request. To stand against the tide, as a whistle blower, simply means being ready to get wiped o u t of the organization, so negative avoidance applies solidly h e r e . T h e r e are motives to abuse the use of state power a n d wealth since there is n o whistle blower in this case for everybody has h i s / h e r shares in o n e big gulp. Diffusion of responsibility may be applied in this context to explain why corruption survives well a n d has b e c o m e a widespread practice. T h e origins of corruption can be traced back to the old practice d u r i n g the feudal time w h e n public officials were n o t paid salaries b u t allowed to retain a portion of taxes a n d fees collected from feudal servants. Acting as the mediator, t h e officials were entrapped to overcharge the farmers a n d embezzle a portion from the feudal lord leading to what has b e e n earlier described as Chor Raj

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Bang Luang. Corruption in this sense confirmed what Acton (1902) concluded in his book, A Study in Conscience and Politics, that "power corrupts, absolute power corrupts absolutely" (p. 161). State power, therefore, has b e e n the enabling factor for public office holders to misuse their powers for self-interest. W o n g h a r n c h a o (1973) viewed corruption as a matter of subjectivity amidst a value system. A d e t e r m i n a n t of corruption needs a reference p o i n t a n d varies from o n e society to a n o t h e r d e p e n d i n g o n the collective experience a n d interpretation within the community. Even within o n e community, there is n o absolute definition for corruption, for it is a fluid concept based o n the societal n o r m s a n d value j u d g m e n t of people at a particular point in time. For instance, traditional merit awards may unintentionally contribute to corruption. O u t of good will a n d intention, willing bribery often occurs as a result. Similarly, favoritism a n d nepotism have s t e m m e d from the p a t r o n a g e system to b e c o m e the spoils system, whereas privilege is concentrated within one's own network or circle of friends. Corrupt behaviors, therefore, are contingent u p o n the consequences a n d damages to civic wealth a n d rights. Corruption may start small like receiving a gift or a token of appreciation for a multi-billion b a h t project. It is difficult to draw the line as to where corruption truly begins since corruption, as stated earlier, encompasses b o t h tangible a n d intangible benefits. From a token of appreciation, it may e x p a n d to cover expressions of gratitude o n e feels towards favorable consequences, as was the case when a tycoon politician 'hastened' a request for a luxury car to be parked at his collegial statesman's garage merely as a gift of goodwill. In this regard, it requires a call of good j u d g m e n t . T h e acceptance of a goodwill gift has to be weighed against social n o r m s a n d professional ethics (Kraivixian, 1967). Suthee Arkasrerk has b e e n an exemplary public officer a n d an advocate of ethical behavior o n the part of state officers. Living a modest life a n d riding public transportation to work, Arkasrerk has now retired as secretary-general of the former C o u n t e r Corruption Commission. In a p a p e r on "Causes of Corruption," Arkasrerk (1981) identified four factors affecting a person's decision to corrupt.

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Corruption is the e n d result of a decision-making process which individuals reach the conclusion that corruption is a viable a n d preferred alternative in o r d e r to optimize the chance to get what they want with minimal risk of being caught. Figure 3 illustrates a decision tree to indicate w h e t h e r a person is m o r e or less likely to make a corrupt decision. T h e entry p o i n t at which o n e first begins to think of corruption is motivation to m e e t self-serving interests a n d to exclude the organization's goals. While everyone has some u n m e t needs, people may act in a corrupt way simply because there is an opportunity to d o so, or because o n e is t e m p t e d to take a shortcut to wealth. Corruption is further intensified w h e n the risk of being caught is minimal a n d rewards are assured. T h e following decision tree rules o u t the myth of poverty as the primary cause of c o r r u p t i o n . O v e r c o m i n g c o r r u p t i o n is possible, as evidenced by successful cases prosecuted against powerful politicians who ganged u p to buy votes in an attempt to hold the majority of seats in parliament. Even when the magnitude of unsatisfied needs is high, people with integrity a n d honesty can still make sound ethical decisions in seeking alternatives other than corruption. To break the vicious circle will require minimizing shortcuts a n d adding in powerful quenchers. T h e Corruption Suppression Act of the State Office (BE 2518) encompasses all types of misconduct a n d misuse of state power, by means of performing or not performing one's duties, n o t performing oversight that is costly, or generally failure to protect the nation's wealth a n d interest. Corruption can a p p e a r to be legitimate w h e n state power is adept at e n h a n c i n g a particular group's benefit. In this sense, it is referred to as "eating along the river tide." W h e n a j u d g m e n t call can be in favor or disfavor of a certain request or individuals, special a r r a n g e m e n t s can be m a d e . O n the o t h e r end, corruption can involve the avoidance of rules a n d regulations for the benefit of the requester. State officers are, therefore, "eating against the river tide," which is m o r e harmful a n d risky than the former.

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Forces and Failure vs. Trust and Threats in Combating Corruption Since corruption is the consumption of public and private wealth, it involves two parties-the taker and the giver vs. the public and the private. Regardless of the forces against corruption, corruption thrives for several reasons. Table 1 exemplifies psychological frameworks reinforcing the occurrence of corruption.

Table 1: Frameworks reinforcing the occurrence of corruption Parties involved and areas affected

Public wealth

Private wealth

Losers: Citizens

Hidden in nature, public do not know that corruption is taking place

Willing to be bribed to get something else

Unaware of the undermining impact of corruption; nonthreatening and unseen effects None of my business or too busy making ends meet Learned helplessness; I am such a helpless creature

Acceptable, customary practice A gift of goodwill, ways to express gratitude Counter-balance, mutual benefits

Habituation; everybody does it. Twisted belief and declining moral principle; a crooked chief is acceptable as long as he can run the office Losers: Public

The state is too great to be damaged

The private person can afford the payment

Unforeseen effects Habituation and learned helplessness; everybody does it and who am I to quench it?

The crook deserves the corrupted

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Table 1 (cont'd) Parties involved and areas affected

Public wealth

Private wealth

Takers: Citizens

If I don't, somebody else will

It's the business world; survival of ^c fittest

Nobody owns the wealth, why should I care? Once in a while just once and for all Vicarious effect; quick gains and easy to get away with Takers: Public

To compensate for low salary Once in a while just once, and for all

They can afford that mutual benefit

Vicarious effect; quick gains and easy to get away with

Since corruption is hidden and illicit in nature, it is difficult to get "caught in the act." Therefore, corruption often goes unnoticed and undetected. Similar to a buffet party, one can hardly tell who takes what food from the table at what time and in what portions. But what one can observe finally is that there is not much food left on the table — somehow someone has taken the food. And this is perhaps what inspired the "white buffet" cabinet to seek public office and enjoy legitimized corrupted wealth with no consequences. By the time people notice the food quantity, some guests may have already said goodbye and left the room forever. Quite often the catcher and the wrongdoers belong to the same group, which makes it difficult for a corruption case to surface. Imagine if police officers take bribes from drug dealers; it is almost out of the question that a warrant will be sought to arrest oneself.

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T h e recent Constitutional Court trial of a high profile politician for the c o n c e a l m e n t of wealth set a new tone relating to how Thais view corruption. Seemingly, popularity has significant effects o n how the general public sees the issue of c o r r u p t i o n , a n d this supersedes what used to be the threshold of ethical criteria. Public attitude is shifting in how the public is reacting to this case. T h o u g h the case was a b o u t c o n c e a l m e n t of assets, the side effect is that the c o n c e r n e d parties have allegedly m a n a g e d to evade a h u g e tax payment. In a lighter way, the public h e a r d two messages: first, normative practice allows businesses to transfer wealth, a n d second, the mistake was a technical error a n d purely an honest mistake. In this case the outcome was that a political party leader was prosecuted o n the charge of wealth c o n c e a l m e n t w h e n h e was in public office five years ago. O n 7 November 1997, at the time of taking the position, h e did n o t r e p o r t his wealth, which h a d b e e n p u t u n d e r o t h e r people's names, worth 2,371,726,371 baht. O n 4 D e c e m b e r 1997, when h e left the position, h e did n o t r e p o r t his wealth, which h a d b e e n p u t u n d e r o t h e r people's names, worth 1,523,139,657 baht (Annual R e p o r t of t h e N a t i o n a l C o u n t e r - C o r r u p t i o n Commission, 2000, p . 113). It's n o t clear because the evidence is n o t clear. Perhaps these estimates are incorrect. Perhaps h e actually did lose this m u c h — r e m e m b e r it was d u r i n g the economic crisis of 1997. Certainly a gain is n o t reflected in these n u m b e r s . As the person is again holding public office, the case has to go t h r o u g h the NCCC whose final verdict was submitted to the Constitution Court o n 18 J u n e 2001 because the d e f e n d a n t h a d b e e n found guilty earlier of falsely reporting of his wealth, a n d violation of article 295 of the Constitution. T h e defendant, however, claimed that h e was n o t aware of the wealth, a n d the slippage h a d b e e n because of an error in n u m b e r m a d e by his administrative secretary who did n o t know that there was wealth u n d e r o t h e r s ' n a m e s a n d the complexity of the reporting form, that somehow m a d e him fail to r e p o r t the true n u m b e r s of assets a n d wealth. This leads to the plea of "honest mistake." T h e case has b e e n submitted to the Constitutional court a n d is now p e n d i n g for the final verdict of the Constitutional court.

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T h o u g h the NCCC portion of the trial has e n d e d , tension continues because there is a m o v e m e n t to a m e n d the Constitution a n d to restructure the power of the NCCC, especially in regards to the public definition of corruption. T h e final results of this case will lead to a new r o u n d of discussion a b o u t corruption redefinition.

Cases and Studies of Corruption in Thailand T h e m a g n i t u d e of c o r r u p t i o n can b e viewed from b o t h financial a n d social dimensions, a n d its severity is often d e t e r m i n e d by the a m o u n t of money involved or the extent of damaging consequences. T h e worst form of corruption is p e r h a p s that c o n n e c t e d to the judicial system that is supposedly the citizen's last resort. C o m m o n corruption cases involve budgetary p r o c u r e m e n t of e q u i p m e n t a n d public goods, construction of infrastructure, customs a n d taxing, concessions related to privatization of public utilities, a n d regulatory control of a specific business. With c o m b i n e d transactions of 6.9 billion baht, by its n a t u r e the telecommunication business induces corruption, given 1% extra o n the fees is said to be sufficient for a lifetime fortune. U n d e r budgetary p r o c u r e m e n t , top cases involve substances of national security, specific aid/relief projects, loan or international grants, a n d purchase of e x p e n d a b l e goods since the latter is difficult to trace after consumption. A survey c o n d u c t e d by the Engineering Institution of Thailand summarized the corruption process a n d illicit surcharge rates (AntiCorruption Strategy Report, 2000). See Table 2. A survey c o n d u c t e d by the Political Economy Center of Chulalongkorn University in 1999 (Phongpaichit, Treerat, Chaiyapong & Baker, 2000) reflected the perceptions a n d experiences of Thai households about corruption in the public sector. Major findings include: •

corruption in the public sector was r a n k e d as the third most serious national threat after poverty a n d the rising cost of living (see Figure 4)

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Maneewan Chat-uthai & Gary N McLean Table 2: Examples of corruption processes and resulting costs

Stages

Parties involved

Customary fees

1. At the beginning of the project Inflate budget — 30-40% Chief of the project above market rate

15% of total project cost

Combined into a bid package for influential groups

Director-general/ Minister

7%-30% of construction price

Disclose base rate and details of BOQ (base of quotation)

Estimator

40,000 baht — 0 . 1 % of price value

Exchange information, specifications

Specifications designer

40,000 baht per month

2. During project monitoring Department A

3%-5%

Department B

15%

Office C

10%

Department D

1.5% before contract signing

Mayor

10%-15%

Project controller

5,000-40,000 baht/month

d OT (Overtime)

Project controller

5,000-20,000 baht/month

d purchase of ials

Specifications designer

3%-5%

Finance officer

20,000 baht up to 5%

Invoice disbursement

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Table 2 (cont'd) Parties involved

Customary fees

Concealed, limited circulation of bid announcement

Procurement officer

5%

Summary report for finalist

Committee secretary

Vote casting for finalist

Committee

5%-10%

Periodic acceptance

Committee, Controller

Leisure, accommodation 5,000-10,000 baht/person

Periodic disbursement

Finance

20,000 baht — 5%

Overrule defects

Controller, Committee

20,000-40,000 baht/ month

Overlook details/ facilitating

Controller

Overtime, employment of spouses and relatives

Chair, director

Secure position after retirement

Stages 3. Bidding

4. Accepting the Work

Extension with no fines Speed up the license within 60 days

10% of fines Controller, committee

Bangkok Metropolitan Administration

1-2 million baht (of 1,000 million baht project)

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Figure 4: Nationwide perceptions of corruption (mean score on a 7-point scale)

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•

Police a n d m e m b e r s of parliament (politicians) are rated as the least honest state officers • Land, Police, and Tax are the top three bureaus with accumulated bribes of 8 8 % One-third of the respondents were offered m o n e y to buy their votes at the last general election • 3 % of the respondents offered payment to get their children admitted to public schools, a n d 13% of the households involved h a d b e e n solicited for payment for school e n t r a n c e a n d court cases. Transaction costs for these purposes totaled 25 billion baht. Research o n corruption in the Thai bureaucratic system was c o n d u c t e d by a g r o u p of economics professors with support by the National Counter-Corruption Commission (Phongpaichit, Phiriyarangsan, Treerat & Niyomsilp, 1997). T h e study aimed at advancing u n d e r s t a n d i n g of causes a n d thus the prevention of bureaucratic corruption. A m o n g the major findings are that the primary sources of corruption are public losses or leakage of government revenues, as in the case of value-added tax fraud by businessmen; customs procedures; a n d government concessions in the telecommunication industry. H e n c e , the study attempted to create a set of indicators a n d recommendations to combat corruption. Tax fraud was found in the case of forged documents, deceptive evidence, a n d submission of false reports — with or without the assistance of public officials. T h e forgery often went u n n o t i c e d because advanced techniques were usually used by the business. In the customs clearance process, "tea money" donations have b e e n a frequent practice. Results of the survey of 430 businessmen confirmed that the value-added tax was the easiest a n d most frequent point of evasion; followed by i n c o m e tax, i m p o r t tax, a n d customs duty. T h e latter has b e c o m e a recent scandal that broke out d u r i n g the parliamentary o p e n debates. T h e opposition party revealed the deceptive customs duty of luxurious imported vans in the Toyota a n d Mercedes Benz family (as detailed earlier).

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Past and Present Efforts to Quench Corruption, and the Results As it is h a r d n o t to taste honey at the tip of the tongue, corruption finds its place a m o n g those with discrete power a n d authority. Klitgaard (1996) equated corruption of state officers as: Corruption = Monopoly + Discretion Accountability - Transparency Absolute discretion can be self-destructive as it allows the power h o l d e r s to m a x i m i z e j u d g m e n t calls a n d t h e r e f o r e legitimize corruption. A root cause of corruption a m o n g public office holders used to be attributed to low income a n d salary. But m o n u m e n t a l corruption cases in m o d e r n days have b e e n found a m o n g influential groups who are far from being poor. If poverty is n o t the cause of corruption, what really causes corruption? Many attempts have b e e n made to strengthen public attitudes against corruption a n d to provide the moral g r o u n d to say ' n o ' to all kinds of temptations. It is interesting that religious leaders who used to set an exemplary role m o d e l also have fallen from grace in scandals. A n o t h e r school of t h o u g h t urges clarification of the public notion a n d recognition of corruption a n d the securing of strong legal measures a n d acts as a c o u n t e r m e a s u r e against corruption a m o n g politicians. It is time to nullify their acts that h i n d e r a n d damage the prosperity of public wealth — economically a n d socially — u n d e r the guiding principle of fairness a n d justice for all. T h e negative connotation of corruption should be spelled out clearly as intolerable. Corruption is the nation's crime that harms a n d violates the fundamental rights of people to have equitable wealth, resources a n d opportunity. Opportunity can be costly a n d often escapes public attention for its effect is p r o l o n g e d a n d snowballs far into the future. Strict control measures n e e d to be p u t in place to allow the congruency of what is said a n d d o n e . A ray of h o p e has been lit in the Thai Constitution with the reformed National Counter-Corruption Council a n d the Constitutional Court as key mechanisms to indict corrupt politicians. A n o t h e r ray is perhaps shining in recent attempts to formulate the national anti-corruption plan of action.

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Section 295 is designed to detect corruption in government office a n d to m o n i t o r the abusive uses of state power. T h e detection of corrupt wealth may be found t h r o u g h the formula: X2 = Xl + Y where X\ is the assets declared prior to j o i n i n g public office; X 2 is the assets declared at the e n d of public office: Y is the traceable assets gained during public office. Any discrepancies found may be attributed to u n k n o w n wealth that may be subject to s u b p o e n a or state investigation o n grounds of corruption (we n o t e d such an ongoing case above). To prevent corruption needs collaboration to take place between the public a n d private sectors. T h e National Counter-Corruption Commission is still by far the major i n s t r u m e n t to address the issue of corruption. Efforts to q u e n c h corruption should focus o n bribery that is widespread in g o v e r n m e n t d e p a r t m e n t s , o n the collusion in government bidding, by the simplification of bureaucratic red tape a n d regulations, a n d strengthening of consumer protection groups to act as watchdogs a n d be whistle blowers when things have gone astray. More importantly, the solution to corruption requires long-term commitment and efforts to reform the bureaucratic system, the police, the judiciary process, a n d politics. In practice, to ensure effective a n d strict measures to decrease corruption is to establish a code of conduct for officials and politicians, the use of public hearings a n d o p e n investigation [and public r e p r i m a n d i n g ] of wrong-doers (Phongpaichit, Phiriyarangsan, Treerat & Niyomsilp, 1997).

Emergence of Good Governance and Civil Society: Another Promising Sign? Phongpaichit a n d Baker (1998) argued that the b o o m economy of the 1990s allowed the sums involved in corruption to be m u c h greater than in earlier years. It also b r o u g h t a transition in the beneficiaries from bureaucrats a n d military to businesspeople, including those in

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the provinces. However, they argue that their e m e r g e n c e occured d u r i n g the b o o m years of "The Mobile P h o n e Mob" (p. 233). They were children of the new, globalizing world... They wanted to see Thailand as a modern nation — not just prosperous but also sophisticated and politically mature. They wanted to be ruled by people as enlightened and sophisticated as themselves, not strutting generals or corrupt, gangsterish businessmen (pp. 233-234). T h e e m e r g e n c e of this u r b a n middle-class with such different expectations has p u t considerable pressure o n the authorities to attack corruption. T h o u g h corruption is complex, public forums a n d c o n c e r n e d authorities are working to address the issues. A national seminar o n "Strategy to Combat Corruption in Thailand: A Plan of Action" was organized in October, 2000, which c o n c l u d e d that, to c o m b a t corruption in a holistic way, all partners in society must be involved. In essence, prevention a n d suppression have to be d o n e simultaneously. Positive a n d negative reinforcement must be applied to e n h a n c e good behaviors a n d q u e n c h undesirable ones. Stricter measures a n d stronger p u n i s h m e n t must be applied to d e n o u n c e corruption as a threat to national security a n d prosperity. Key r e c o m m e n d a t i o n s from the workshop led to four major reforms, including legislation, g o v e r n m e n t administration, politics, a n d education. Figure 5 was presented at the seminar to illustrate the formation of the "Crystal Clear Society." T h e seminar also r e c o m m e n d e d three plans of action to combat corruption, including the p r o m o t i o n of the "Clean Coalition" or a network of morally s o u n d individuals who would work to create a society with a conscience, to provide protection a n d surveillance, a n d who would urge strong p u n i s h m e n t to suppress wrong doings. Sample activities in each plan are in Table 3. Phongpaichit a n d Piriyarangsan (1996) summarized the causes of bureaucratic corruption as "low moral standards of individual bureaucrats, by the deficiencies of the administrative system, a n d by the pressures a n d constraints which society imposes o n officials" (p. 179). In an a t t e m p t to c o n f r o n t all of these issues, they recommended:

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Plan and objectives

Suggested activities

Plan 1: Promotion of the Clean Thai Coalition

Creating academic networks, public dialogues and forums addressing the threats of corruption

Objective: To create a network, "clean Thai coalition," as one of the national agenda

Public awareness raising campaign and use of various learning modules, i.e., stage play, radio, TV, etc. (See also Pongsudhirak, 1997.) Constantly disseminating information on "clean society" Embed learning in training curriculum at all levels of education, orientation and training courses of public officers/ politicians, etc.

Plan 2: Prevention of at-risk activities

Monitor and evaluate corruption and create at-risk indicators

Objective: To establish surveillance and an early warning system to monitor undesirable behavior from the national to local level

Establish a plan of action to reduce at-risk situations by improving the decisionmaking system, reduction of personal judgment, encouraging an open system and transparency Inform external and internal constituents of the plan to create a clean coalition Constant monitoring and evaluation

Plan 3: Suppression of the undesirables

Intensify penalty and punishment on corruption charges

Objective: Develop strenuous and serious action to combat corruption

Reform, revise relevant laws and measures Speed up prosecution process and notify public of results

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Attempts must be m a d e through education a n d the h o m e to help individuals learn to distinguish between "what is legitimate a n d what is corrupt" (p. 179). Objective measures for freedom from corruption must be developed t h r o u g h "political controls, administrative controls, a n d public controls" (p. 179). These would include things like improvements in salaries, improved checks a n d balances, improved processes, clarification of rules, Increase the power of National Counter-Corruption Commission to i m p o s e p e n a l t i e s o n t h o s e "found guilty of c o r r u p t i o n " (p. 180). Reduce the extent of the bureaucracy. Require periodic reporting of one's assets. Government programs be created to eradicate poverty a n d to minimize income disparities. Reform the police administration (the g r o u p w h o m the public perceived as having the highest level of c o r r u p t i o n ) .

As a corruption-free society has b e c o m e a central goal for anticorruption efforts, several coalition networks have b e e n formed with increasing participation of i n d e p e n d e n t organizations a n d the civil society. O n e coalition, known as the Civic Coalition Against Corruption, was established o n 1 May 2001 a n d deals primarily with providing public information o n corruption scandals a n d cases. T h e coalition's objectives include: • • •

•

Mobilize support of civic society in surveillance, monitoring, a n d resolving of corruption. Support the press to conduct in-depth investigation of corruption cases a n d inform the public of the results Support a n d assist volunteer groups a n d m e m b e r organizations in fighting against influence a n d negative impact as a result of their attempts to unveil corruption Support the strengthening a n d capacity building of the civic network to address corruption

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The 5-year vision of the coalition highlights four major efforts — •

the increase of civic knowledge, awareness and understanding of corruption; • change societal norms to accommodate appropriate power utilization and consumption; • the reduction of enabling factors of corruption; and • the cultivation of "anti-corruption" values among youth. Major strategies include the recruitment of civic groups to monitor the government, independent organizations to prevent and resolve corruption, and promotion of social values praising decent acts and denouncing corrupt crooks. The coalition is operating on the principle that corruption is monumental, and to fight against corruption can only be achieved through the public will and strength. In recent months, the coalition network has launched a revealing series of corruption cases in an effort not to let go of lessons learned as a result of corruption. The coalition has been established through a fund-raising campaign to form a foundation of people's networks to combat corruption. Human resource development (HRD) is present in many of these recommendations for change. As McLean and McLean (2001) noted, human resource development is defined in many ways throughout the world, often under the influence of the specific country's culture. In Thailand, according to Na Chiangmai (1998), the definition used for HRD in Thailand includes a strong emphasis on community development and the application of HRD to the needs of the Thai society. It is significant, therefore, that so many of the actions needed within Thailand include changes within the culture and society. Happily, as increasing numbers of Thai universities add programs in HRD, there becomes an increasing pool of trained HRD professionals with skills to influence the processes of change management within Thailand. In spite of all of these suggestions, however, it is improbable that corruption will disappear in Thailand until its leaders — both at the top and in its parliament — become truly committed to eradicating corruption (Quah, 1999). Tipton (1998) argued for

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the develop-ment of leadership at all levels as "Thailand's future success d e p e n d s o n the balance between the state a n d private capitalists" (p. 470). H e argued also that there is a n e e d to get the military out of government, a n d to provide greater balance between Bangkok and its provinces. Nevertheless, as Q u a h noted — n o n u m b e r of programs or p r o n o u n c e m e n t s (vast or small) will change the situation if exemplary leadership is n o t developed.

Concluding Remarks: Clean Hands Save Thy Land We c o n d u c t e d an interview with Mr. Klanarong Chanthik (July 24, 2001), Secretary G e n e r a l of t h e N a t i o n a l C o u n t e r - C o r r u p t i o n Commission — this was e n r i c h i n g a n d serves as a summary of this chapter. Chanthik's reputation as a brave person has b e e n accumulated t h r o u g h spotlighted corruption cases that h e b r o u g h t to final prosecution. In a closing a r g u m e n t p u t forth at the Constitution court in J u n e , 2001, to indict an extremely popular high ranked politician o n wealth concealment, Chanthik stated: "Acting o n behalf of the NCCC, my patriotic spirit is n o less than any o t h e r Thai. I deeply recognize the importance a n d impact of what I am doing. But there are certain rules a n d laws to be observed." Chanthik proclaimed that corruption is a detrimental societal p r o b l e m . "It is a crime of the nation, a n d the solution is n o longer the sole responsibility of the NCCC, b u t shall rest in all of us." H e further observed that it is a fallacy to consider poverty as the sole cause of corruption, a n d law enforcement alone is far too ineffective to combat corruption. As corruption lies d e e p in the mentality a n d rationalization of the people or the way they see it, there certainly is an e m e r g e n t n e e d to rebuild an anti-corruption society. "It is time to take immediate action against corrupted people a n d power," u r g e d Chanthik. To fulfill the clean-hands slogan, four strategies were r e c o m m e n d e d to save Thailand, including efforts to revitalize social moral conscience, reshape civic discipline, e n c o u r a g e the "watch dog" society, a n d create a community able to d e n o u n c e c o r r u p t e d power a n d wealth. "It is truly time to declare war with corruption

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t h r o u g h effective prevention a n d a strong code of punishment. It all has to start from the top down, demonstrated by exemplary leaders who 'Walk the Talk'." O n the dilemma of "crooked b u t capable," Chanthik also h a d an answer. H e viewed each action as having its own consequence. As the crooks get cracked by the stick, the capable will simply enjoy the carrot. A concluding r e m a r k of the NCCC top person was, "Believe m e , there is n o honest mistake in the corrupted world. T h e truth is always that people know exactly what they are doing or a b o u t to engage in. It is their selective rationalization that blinds t h e m from moral conscience." This p e r h a p s has m u c h to d o with the selfexoneration mechanism, in which people choose to substitute moral action with customary practice of the "everybody does it" attitude. They use the lack of a witness, or n o valid proof of guilt, a n d the power to rest assured of being a crook without being caught as excuses to be corrupt. As Chanthik said, "If we change the attitude of t h e Thais, we will s u c c e e d in r e d u c i n g , if n o t eradicating, corruption at all levels."

References Acton L (1902) A Study in Conscience and Politics. Chicago AJ Nystrom 8c Co. Annual report of the National Counter, Corruption Commission (2000) Bangkok, National Counter Corruption Commission. Anti-Corruption Strategy Report (2000, September 13-14) Bangkok, National Counter Corruption Commission. Arkasrerk S (1981) Causes of Corruption. Bangkok, National Counter Asia. Corruption Commission. Bandura A (1969) Principles of Behavior Modification. New York, Holt, Rinehart & Winston. Chanthik K (2001, July 24). Personal interview conducted by the firstnamed author. Dubey-Villinger N (2001) Thai business culture: Hierarchy and groups, initiative and motivation. In: KiddJB, Li X & Richter F-J (eds.), Advances in Human Resource Management in Asia. New York, Palgrave: 105-116.

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Hofstede G (1980) Culture's Consequences: International differences in workrelated values. L o n d o n , Sage Publications. Hofstede G (1991) Cultures and Organisations: Software of the mind. L o n d o n , McGraw-Hill. Klitgaard R (1996) Bolivia: Healing sick institutions in La Paz. In: Meagher P (ed.), Governance and the Economy in Africa: Tool for Analysis and Reform of Corruption. College Park, MD, C e n t e r for Institutional Reform a n d the Informal Sector. Kraivixian D (1967) Laws a n d corruption. Bangkok, Office of the Prime Minister's Press. McLean GN & McLean LD (2001) If we can't define HRD in o n e country, how can we define it in an international context? In: Aliaga O (ed.), Proceedings of the Academy of Human Resource Development Conference. Baton Rouge, LA, AHRD: 1 0 6 4 - 1 0 7 1 . Na Chiangmai C (1998, O c t o b e r 1) Current outlook and trends of HRD in Thailand. H a n d o u t distributed in International HRD course, University of Minnesota, St. Paul, MN, USA. P h o n g p a i c h i t P & Baker C (1998) Thailand's Boom and Bust. Chiang Mai, Silkworm Books. P h o n g p a i c h i t P & Piriyarangsan S (1996) Corruption & Democracy in Thailand. Chiang Mai, Silkworm Books. P h o n g p a i c h i t P, Piriyarangsan S, T r e e r a t N & Niyomsilpa S (1997) Corruption, in the T h a i bureaucratic system. Bangkok, T h e C o u n t e r C o r r u p t i o n Commission. P h o n g p a i c h i t P, Treerat N, Chaiyapong Y & Baker C (2000) C o r r u p t i o n in the public sector in Thailand: Perceptions a n d experience of households. Bangkok, Office of the Civil Service Commission. P o n g s u d h i r a k T (1997) Thailand's media: Whose watchdog? In: Hewison K (ed.), Political Change in Thailand: Democracy and Participation. L o n d o n , Routledge: 217-232. Q u a h J S T (1999) C o m b a t i n g c o r r u p t i o n in South Korea a n d Thailand. In: Schedler A, D i a m o n d L & Plattner MF (eds.), The Self-restraining State: Power and Accountability in New Democracies. Boulder, C O , Lynne R i e n n e r Publishers: 245-256. T i p t o n FB (1998) The Rise of Asia: Economics, Society and Politics in Contemporary Asia. H o n o l u l u , University of Hawaii Press. Transparency International (1995) Ranking 1995. http://www.gwdg.de/ ~uww/rank-95html

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Transparency International (2000) The 2000 Corruption Perception Index. http://www.gwdg.de/~uww/2000/Data.html Wongharnchao W (1973) Analysis of conflict and corruption studies. Journal of Sociology, 10 (10): 44-47. Yawaprapas S (2000) Corruption in the public sector: Perceptions of the civil servants and anti-corruption action plan. Bangkok, Office of the Civil Service Commission.

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Chapter 14

Comparative Study of Anti-Corruption Systems, Efforts and Strategies in Asian Countries: Focusing on Hong Kong, Singapore, Malaysia, and Korea

Taek Kim

Introduction Let us suggest, with a degree of benevolence, that the c u r r e n t administration has committed itself to serve its people faithfully in the n a m e of the g o v e r n m e n t of p e o p l e . T h e c o m m i t m e n t was considered as its pride a n d joy since it achieved the first overturn of political power against the past regimes, which were lacking in legitimacy. So it was now their will to reform the old misdeeds. Thus we see a democratic country normally has obligations to pursue justice a n d to devote itself to the public interest. These obligations consist of laws a n d systems, a n d institutions, which are i m p l e m e n t e d a n d controlled by the administrative parts of the government. However it follows that if the government is blind to the duties of the officials a n d the corruption of a few of its elite, t h e n mistrust a n d confusion in its society will never disappear. Presently we are witnessing in Korea an e n o r m o u s collision of the corrupt a n d the anticorrupt thrashing about like surging waves. A recent scandal involving a president of a venture firm who was hit by bribery (to the value of about $800,000) by a garbage m a n of the Blue House (the Korean President's House, so-called ChongWa-Dae) reveals how deeply o u r society is corrupt (Kim, 1999). In

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fact, the issue of corruption in Korea is not a new thing. Since the first democratic government of Lee Seung Man (the first Korean president, 1948-1960), all the following Korean administrations have tried to fight against corruption, but they failed. Although the first republic in Korea, for example, received enough official development assistance (ODA) from overseas sources which gave them a chance to combat corruption, that republic collapsed due to various political corruption scandals — such as the-rigged election of March 15 th , 1960. The third republic was established by a military coup d'etat on May 16th 1961, (and a fourth republic followed in 1972), were a little bit more successful in combating corruption through more innovative measures. Economic development under the dictatorship of the president Park Jung Hee, however, brought about corruption once more notwithstanding their avowed good aims. Ironically the corruption served as a catalyst for economic growth! The fifth and sixth republics (through 1981-1992) did not overcome the spate of corruption, and unfortunately the two expresidents, Chon Doo Hwan and Roh Tae Woo, were put into a judicial settlement. Inevitably the people's mistrust towards the government was growing, since for decades the people had been suffering from the corruption. In addition, there had not been enough research or study upon any policy for anti-corruption, even though many people recognized how important it was to carry out systematic improvements to prevent corruption. Soon after President Kim Dae Jung's inauguration in 1998, we — the people and the government — introduced and implemented various initiatives to combat corruption, resulting in success to some extent. Still, the corruption of political power was not completely abolished. There is a characteristic of corruption in Korea that is a kind of time-honored tradition without which a social success would be almost impossible. What is called 'a culture of corruption' dominates the everyday lives and the minds of the public. That is why, in order to combat corruption, we need to reform consciousness as well as innovate change in the conduct of administrations. Successful models of anti-corruption elsewhere should be considered.

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Corruption in Korea even acted as a springboard for the careers of public servants, a n d as a lubricant for economic development. For too long the officials have r e m a i n e d complacent in the culture of corruption u n d e r regimes lacking in legitimacy. Unless we eradicate corruption from o u r society, even the basic frameworks of our nation may be threatened: a n d by n o t acting we will n o t strengthen o u r competitiveness. Thus, 'corruption' has to be explored for many r e a s o n s , a n d we m u s t analyze h o w to c r e a t e effective anticorruption measures. This chapter is trying to cast light o n corruption from many different viewpoints. Focusing o n four countries in Asia — H o n g Kong, Singapore, Malaysia a n d Korea — it considers the anticorruption infrastructures a n d their corruption prevention systems of the first three countries in o r d e r to c o m m e n t o n the situation in Korea. To g a t h e r p r i m a r y evidence, the a u t h o r visited t h e i n d e p e n d e n t commission against c o r r u p t i o n (ICAC) in H o n g Kong, a n d the corrupt practices investigation b u r e a u (CPIB) in Singapore — their legislative instruments a n d their research data were the main focus. First, we introduce cases in H o n g Kong, Singapore, a n d Malaysia that were success stories in combating corruption, Second, we offer an analysis of the roles of the anti-corruption agency (ACA) in Malaysia, the ICAC in H o n g Kong, a n d the CPIB in Singapore. Lastly, we review the c u r r e n t administrative situation with respect to Korean corruption, a n d we suggest possible countermeasures — focusing on the b o a r d of audit a n d inspection of Korea.

Individual National Anti-Corruption Systems T h e anti-corruption measures in Asia are n o t e d for their strict, even harsh, p u n i s h m e n t levels, a n d their strong legal enforcement acting against corruption. Most Asian countries already have appropriate laws a n d they apply them. For instance, Korea has the law o n the

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public servants, the public servants in provinces, a n d the public servants' ethics, b u t they are n o t effectively enforced. In this c h a p t e r we will examine why this is generally so.

Hong Kong (1) Background Before the mid 1970's H o n g Kong was totally spotted by corruption. At that time people in H o n g Kong used phrases that reflected social corruption. "To get o n the bus" m e a n t to actively get involved in corruption; "to r u n with the bus" was just to remain indifferent to corruption; also "to stand in front of the bus" m e a n t to make known or resist corruption. T h e first two were practical choices for people, b u t the last was considered impractical (Manion, 1996). In 1948, H o n g Kong set the law o n the prevention of corruption ordinance, which strictly p u n i s h e d congressmen, businessmen, a n d the government officials who committed corruption. I m p r i s o n m e n t u p to five years a n d a fine u p to $10,000 was possible. T h e r e was a special body called anti-corruption b r a n c h established u n d e r the police d e p a r t m e n t , b u t it was too inefficient. So the legislature formed the standing committee o n corruption in 1957 a n d it included the executive a n d the legislative personnel by 1960. In 1971, the law o n the prevention of bribery o r d i n a n c e was set u p , which indicated that if a public servant possesses or maintains inappropriate wealth, h e or she might be accused of the crime of corruption. If h e or she hides his or h e r belongings, it is a crime too. A delegation from the United Kingdom, h e a d e d by Mary Maclehose, came to H o n g Kong in o r d e r to advise o n the eradication of corruption. It supported the creation of the basic law on i n d e p e n d e n t commission against corruption ordinance in February of 1974, which instantiated the i n d e p e n d e n t commission against corruption (ICAC). At first it was criticized because it was n o t in h a r m o n y with Chinese customs a n d tradition. Today, H o n g Kong is known worldwide for having a clean civil service a n d providing a level playing field in business (although there are u n d e r g r o u n d hints, now it has reverted to the

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force of Beijing, that it will soon a p p r o a c h the levels of corruption seen in mainland China. T h e slogan "One China — two laws" can n o t be maintained for long as the b o r d e r between H o n g Kong a n d the m a i n l a n d b e c o m e m o r e free a n d the neighbors [with their different ethics] m o r e freely mingle). H o n g Kong's success in substantially reducing corruption has b e e n h a r d e a r n e d by a close partnership between the community a n d the ICAC. ICAC has the powers of investigation, arrest, a n d detention a n d of granting bail, which are fundamental to any law enforcement agency. It contributed to maintaining H o n g Kong as a fair, just, stable a n d prosperous community. It also educated the public against the evils of corruption by the use of television a n d radio commercials, as well as by printing advertisements to publicize the work of the ICAC. (2) Organization and activities T h e Commission has corruption prevention was given specific legal the law of i n d e p e n d e n t

t h r e e d e p a r t m e n t s (i) of operations, (ii) a n d (iii) community relations. T h e ICAC powers to bring the corrupt to book u n d e r commission against corruption ordinance.

•

First, the ICAC has the powers of arrest, d e t e n t i o n a n d of granting bail for misuse of office, as well as crimes facilitated by or connected with suspected corruption offences. • Second, the commissioner or the vice-commissioner has the power of issuing a warrant for the arrest perpetrators of corruptionrelated crimes regardless of public or private. • Third, the commissioner or the vice-commissioner has the powers of investigation to unravel a n d identify the transactions a n d assets concealed in different guises by the corrupt. These powers include: • Searching bank accounts; • H o l d i n g a n d examining business a n d private documents;

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Requiring the suspects to provide details of their assets, income and expenditure; Fourth, the commissioner or the vice-commissioner makes every ICAC officer vow n o t to receive bribery from anyone.

T h e operations d e p a r t m e n t receives, considers a n d investigates alleged corruption offences, while the community relations departm e n t educates the public against the evils of corruption a n d enlists public support in combating corruption. T h e corruption prevention d e p a r t m e n t examines practices a n d p r o c e d u r e s of g o v e r n m e n t d e p a r t m e n t s a n d public bodies to reduce corruption opportunities a n d offers corruption prevention advice to private organizations u p o n request. Its commissioner is directly answerable to the chief executive, so the i n d e p e n d e n c e of the commission is assured. T h e chief of each d e p a r t m e n t can limit the power of his subordinate if that person's behavior is suspected, such as prohibiting the disposing of his belongings or to request their financial disclosure statements. Also ICAC officers can arrest a n d detain each o t h e r without a warrant. They are n o t affected by p e r s o n n e l administration, a n d usually get higher salaries than other governmental officials — which helps combat any inclination to accept monetary 'gifts'. (3) Ethics code of public servants According to the law on bribery prohibition, a n d the chief executive's c o m m a n d o n receiving an entertainment, the public servants of H o n g Kong must follow ethics code as follows (Chun Soo II, 1999): • In H o n g Kong the public servants may n o t receive cash, securities, gifts a n d entertainment without permission from the Chief Executive. If the gifts are n o m o r e than ordinary for o t h e r people a n d are n o t directly related with the j o b , they are acceptable. • A public servant's loan from a friend c a n n o t be m o r e than HK$2,000 a n d it must be paid back before 14 days. • In case a public servant receives a gift n o t in accordance with the code of conduct, h e or she must obtain a prior approval

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from his or h e r chief. If the public servant fails to obtain a prior approval, h e or she must obtain an ex post facto approval. • A chief should o r d e r his or h e r subordinate officials to r e t u r n h o n o r a r i u m which is n o t approved. If it is impossible to r e t u r n it, t h e chief should dispose of it. • Any public servant who is in violation of the chief executive's codes o n ethics faces a fine of HK$100,000 or 1 year's imprisonment.

Singapore Asian countries with their background based on a Confucian culture, with few exceptions, are c h a l l e n g e d by t h e p r o b l e m of active c o r r u p t i o n in their h i g h e r echelons, a l t h o u g h t h e p o p u l a t i o n generally may enjoy reasonable economic development. Singapore is the exception. It has kept its government free from corruption since its i n d e p e n d e n c e in 1965, a n d it has maintained an a n n u a l growth rate of about 9%, with a national i n c o m e p e r capita of around US$32,000. As far as their politics is c o n c e r n e d , the ruling people's action party (PAP) of the i n c u m b e n t Prime Minister Goh Chok Tong a n d senior minister Lee Kuan Yew has held political power for 40 years. Unlike the saying 'absolute power corrupts absolutely', the PAP is cited as a reasonable example of transparent politics. T h e r e is n o t even a h i n t of the term 'political fund'. By minimizing the election campaign fund, the h e a d q u a r t e r s of PAP is funded only by its m e m b e r s ' d u e s , a n d e a c h district party c h a p t e r is f u n d e d by subsidiary businesses such as kindergartens, a n d bazaars. For h i g h e r officials a strict code of ethics is applied. Tan Kia Khan, who was t h e ex-prime minister Lee's right-hand m a n , was p u n i s h e d for a scandal relating to accepting commissions from the Boeing company in 1965: h e was a minister of national development at that time. A n d in 1976, Wi Tun Buhn, a secretary of state a n d alumni of Mr. Lee, was sent to the prison for corruption. Singapore d e m a n d s that administrative officials strengthen selfcontrol or self-inspection for the p u r p o s e of eradicating the causes

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of corruption. By providing high salaries, rewards a n d excellent working conditions for the public officials, Singapore makes t h e m m o r e devoted to their work a n d thus helps prevent possible corruption (Quah, 1995, 1999). T h e anti-corruption efforts by the top leadership such as prime minister Goh Chok Tong a n d senior minister Lee Kuan Yew play a very i m p o r t a n t role. Mr. Lee publicly a n n o u n c e d that h e has n o individual possessions, a n d the opposition parties were never able to blame him for such matters. Nor could the western press ever criticize his integrity, although it m e n t i o n e d his dictatorship — since they are fundamentally inclined against dictatorships. T h e Prevention of C o r r u p t i o n Act, formulated in 1937, was revised in 1960 to have m o r e binding powers. T h e main p o i n t was to grant a stronger power to the director of the corrupt practices investigation b u r e a u (CPIB). T h e director is appointed by the prime minister, a n d can arrest c o r r u p t i o n - r e l a t e d suspects w i t h o u t a warrant. Criminals' accused of corruption may face i m p r i s o n m e n t u p to 7 years, with fines. (1) Background Established in 1952, the corrupt practices investigation bureau (CPIB) is an i n d e p e n d e n t body that investigates a n d aims to p r e v e n t corruption in the public a n d private sectors in Singapore. From the 1940's to the 1950's corruption a n d violation were widespread in Singapore. In those days the anti-corruption b r a n c h — known simply as the Singaporean police, h a n d l e d all the crimes relating to corruption. T h e Branch, however, did n o t achieve satisfactory results, in part, because t h e p o l i c e m e n themselves were stained with corruption. That is why there emerged a strong n e e d for an organization to investigate corruption that was itself i n d e p e n d e n t from the police. In the early days, the CPIB h a d some difficulty in collecting proof of individual corruption because the relevant laws were n o t efficient. A n o t h e r p r o b l e m was a lack of cooperation by the public sector. Most of the public officials were doubtful, a n d even scared, of the CPIB's activities. After 1959, w h e n the People's Action

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Party took power, this situation began to change. T h e p u n i s h m e n t against the c o r r u p t officials b e c a m e h a r s h e r a n d they p u r g e d corruption from public life. T h e CPIB restored the confidence of the public with respect to officials as the government was seen to have i m p l e m e n t e d the anti-corruption policies faithfully. (2) Legislation In 1960, the g o v e r n m e n t of Singapore established m o r e still effective law against corruption — the prevention of corruption act. T h e CPIB derived its powers of investigation from the Chapter 241 of the prevention of corruption act. A n d a new law, corruption (confiscation of benefits) act, was passed in 1989. This law empowers the court to confiscate a n d freeze all the properties gained t h r o u g h corruption. (3) Organization and Activities Elimination of corruption in Singapore was possible because of the severe institutional mechanism. T h e prevention of corruption act established in 1960 strongly precludes corruption of politicians a n d public officials. Further, a d i r e c t o r who is directly responsible to the prime minister heads the CPIB. T h e b u r e a u consists of 49 officials, a m o n g w h o m there is o n e director, two deputy directors, five assistant directors a n d 41 special investigators. T h e r e are two divisions in the bureau, o n e is the operation division a n d the o t h e r is a specialist support division. Each of division is responsible to a deputy director. T h e main activities of the CPIB are as follows: •

•

the b u r e a u is responsible for safeguarding the integrity of the public service a n d encouraging corruption-free transactions in the private sector. it is also charged with the responsibility of checking o n malpractice by public officers a n d r e p o r t i n g such cases to the a p p r o p r i a t e g o v e r n m e n t d e p a r t m e n t s a n d public bodies for disciplinary action.

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besides bringing corruption offenders to book, the b u r e a u carries out corruption prevention by reviewing the work m e t h o d s a n d procedures of corruption-prone d e p a r t m e n t s a n d public bodies to identify administrative weaknesses in the existing systems that could facilitate c o r r u p t i o n a n d malpractice. It r e c o m m e n d s remedial and prevention measures to the heads of the departments concerned.

Although the primary function of the b u r e a u is to investigate corruption u n d e r the Prevention of Corruption Act, it is empowered to investigate any o t h e r seizable offence u n d e r any written law that is disclosed in the course of a corruption investigation. With e n o u g h suspicion the b u r e a u can arrest the suspect without a warrant (Kim B y u n g C h u l , 1996).

Malaysia Anti-corruption law This law, established in 1997, contains m u c h against corruption. Especially the system of a director-general is notable. This person, the director-general, is held responsibility for the following u n d e r this law — h e receives reports a n d must follow-up enquires u p o n t h e m h e must investigate any suspicious acts h e helps disclose any crimes h e enquires a b o u t — discussing the practices, systems, a n d procedures in the public sector a n d undertakes to correct t h e m to prevent any m o r e corruption, he guides a n d instructs the corruption-related criminals h e gives advice to the chiefs in the public sector to assist t h e m in changing their practices a n d systems to minimize the possibilities of corruption h e educates the public in detail a b o u t anti-corruption Lasdy, he enlightens people u p o n the reasons fhey should combat corruption.

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Anti-corruption agency (ACA) In parallel with the national vision, in 1996 the ACA formulated its own vision, mission a n d strategies. They are m e a n t to p u t in to focus the n e e d for a concerted effort in the fight against corruption, while at the same time to devise and to fine-tune other workable solutions. Based o n the information they collect, the ACA prosecutes anyone with any provable case of corruption or any offence u n d e r the corruption laws or generally prescribed laws. While the ACA procures, collates a n d vets all information received for the efficient detection a n d identification of all forms of corrupt activities a n d abuse of power, it inquires a n d investigates cases of c o r r u p t i o n , malpractice a n d abuse or power efficiently a n d rapidly. By enforcing the laws a n d the regulations fairly a n d firmly, their sovereignty a n d that of the public a n d the nation's interests are consistently upheld. T h e ACA is also empowered with specific administrative powers enabling it to e n d o r s e or submit reports to the heads of d e p a r t m e n t s to initiate disciplinary action against civil servants; or for the identification of weaknesses in the departm e n t s ' machinery with suggestions as to their remedies. Ordinarily tliese reports are forwarded as offshoots of investigations of corruption cases. T h r o u g h the studies a n d appraisal of the administrative a n d m a n a g e m e n t systems of specific government agencies or departments, the ACA detects weaknesses that provide potential opportunities for corruption, a n d so makes appropriate r e c o m m e n d a t i o n s for their remedy. Vetting exercises are also carried o u t to ensure that only those n o t u n d e r active investigation by the ACA, or those with criminal records in the ACA, are considered for p r o m o t i o n , a p p o i n t m e n t to i m p o r t a n t positions, or have offers of awards or optional retirements. It is encouraging to n o t e that certain financial institutions before finalizing their own r e c r u i t m e n t of top managerial positions send the candidates' names to the ACA for vetting.

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To help build a corruption-free society grounded on universal spiritual and moral values and spearheaded by a clean, efficient and trustworthy government, the ACA works in cooperation with the government and the world-class anti-corruption organizations. It formulates and mounts anti-corruption campaigns through the mass media, forums, seminars, workshops, joint operations, conducting surprise checks, etc. In order to upgrade the ACA into a highly professional and reputable agency, they develop systematic and organized human resources development and proactive leadership programmes. Special attention is focused upon enhancing the leadership and management quality at all levels of ACA officers through the application of these human resource development programmes, the management of information technology and through improved work processes. Strategy

The government of Malaysia has endorsed the ACA's three-pronged strategy spelt out in its vision, namely: Reinforcement/Consolidation strategy: Through this strategy, among other things, proposals for the improvement of the ACA's scheme of service, financial allocation, manpower development and the strengthening of relationship with other agencies are being made. Prevention and promotional strategy: Under this strategy, the ACA, with the backing of the Government Special Cabinet Committee acts as an adviser to both government and provincial agencies in their planning and implementation of preventive programmes towards instilling an awareness on the evils of corruption. This is being done through talks and dialogues and the distribution of videotapes containing inspiring religious talks, or corruption dramas on anti-corruption themes. One objective is to motivate or encourage them to combat corruption within their folds. Another is to give appropriate recognition to individuals or agencies that have exhibited exemplary conduct in combating corruption directly or indirectly.

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Enforcement strategy: This strategy focuses o n law enforcement efforts which includes reviewing the effectiveness a n d adequacy of the existing laws o n corruption, especially the provisions pertaining to investigation, prosecution a n d sentencing. As a matter of fact, a comprehensive proposal amalgamating the laws o n corruption has been drafted, a n d it is being studied by the Attorney General's Office.

Comparative Analysis Administratively the region is in a little flux. H o n g Kong, once a British colony for a long time, is now a special administrative region since its r e t u r n to China 1997. A n d Singapore is a city-state, which b e c a m e i n d e p e n d e n t from t h e Malaysian f e d e r a t i o n in 1965. Currently the people's action party (PAP) of Prime Minister Goh Chok Tong is the ruling party of Singapore, while H o n g Kong is now a special administrative region of people's republic of China, u n d e r the governance of the chief executive, Tung Chee Hwa. It follows that the anti-corruption bodies in most of the Asian countries are very diverse. For instance — a secretariat of the president, a public prosecutor, t h e police, the b o a r d of audit a n d inspection, the i n d e p e n d e n t commission against corruption (ICAC) a n d the c o r r u p t practices investigation b u r e a u (CPIB) are all the examples of the relevant anti-corruption authority according to the legal system of the countries in focus in this chapter. In the case of Korea, the board of audit a n d inspection is a constitutional a n d i n d e p e n d e n t organization; also, the law o n the b o a r d of audit a n d inspection specifies its role of audit a n d inspection. T h e ICAC of H o n g Kong a n d the CPIB of Singapore b o t h have c o m m o n functions a n d powers in keeping with the board of audit a n d inspection of Korea, b u t in the field of anti-corruption, they have stronger powers than those m a d e available to the b o a r d of Audit in Korea. While this b o a r d in Korea does n o t have the power of investigation (it only indicts the public prosecutor), the ICAC of H o n g Kong a n d the CPIB of Singapore have n o t only the power of investigation, b u t also of arrest without a warrant. In Korea, a warrant must be requested by the prosecutor a n d issued by the court.

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We might see that H o n g Kong a n d Singapore deals with corruption t h r o u g h mechanisms i n d e p e n d e n t of government b u t have quite different duration since incorporation. T h e ICAC of H o n g Kong was established in 1974 a n d the CPIB of Singapore in 1952 (although the anti-corruption branch (ACB) of Singapore was created as a part of criminal investigation d e p a r t m e n t in 1937), while the board of audit a n d inspection (BAI) of Korea was established in 1948. Later, in Korea, the commission for the prevention of corruption (CPC) was set u p in April 1993 as an advisory body for the chairman of the BAI. More recently u n d e r the Kim Dae J u n g administration the presidential commission o n anti-corruption was established as an advisory body to the President on September 10 th 1999. I n d e p e n d e n t working against corruption is c o m m o n p l a c e in H o n g Kong a n d Singapore, yet despite strong powers a n d roles, the BAI a n d the public prosecutor in Korea are very p o o r in fulfilling their role. Perhaps o n e reason is that the staff of the BAI in Korea is only about 800, while ICAC of H o n g Kong has m o r e than 1,400 a n d Korea has a vastly greater geographic spread. While the public prosecutor in Korea is criticized by the people about his independence a n d neutrality, those discharging equivalent positions in H o n g Kong a n d Singapore enjoy the support of people a n d they never yield to any pressure. H o n g Kong a n d Singapore have established anticorruption laws, while in Korea the ultimate law is still p e n d i n g in their parliament. While the CPIB of Singapore is responsible to the Prime Minister a n d the ICAC of H o n g Kong to the chief executive, the BAI of Korea is u n d e r the President of the republic as a constitutional government agency. Most countries attempt to carefully control the corruption of the public officials legislating against bribery, frauds, theft, misappropriation, tax evasion, d r u g traffic, gambling a n d malpractice of business. In a sample of Asian countries we may see that anticorruption laws were established in Singapore in 1960, in H o n g Kong in 1948, in Thailand in 1975, in Malaysia in 1961 a n d in India in 1947. T h e US a n d the UK also established relevant laws to cope systematically with corruption. But it is only recently, in 1999,

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following the concerted pressure by the OECD that its m e m b e r countries agreed to act coherently against corruption, a n d became signatories to its anti-corruption charter.

Anti-Corruption Systems and Strategies in Korea Anti-Corruption Systems Kim Dae J u n g ' s administration has l a u n c h e d comprehensive anticorruption p r o g r a m m e s in response to the people's desire for a corruption-free society. The Korean people expected the government to reform the society overall as they have experienced a n d c o m e to understand the adverse effects of corruption on the economy during the financial crisis a n d subsequent political turmoil. Although Korea rapidly attained e n o r m o u s economic development in only a few decades, the long-standing collusion between politics a n d business proved to be a major cause of the u n p r e c e d e n t e d economic crisis of 1997. T h e Korean government's new anti-corruption p r o g r a m m e s now perfectly tie in with the efforts of the international community to eliminate corruption a r o u n d the world. In conformity with the anti-bribery treaty that was signed by m e m b e r s of the OECD a n d went into effect in February 1999, the Korean government has also tightened its inspection a n d p u n i s h m e n t of those businesses offering bribes to a foreign entity. T h e main actions of the i n c u m b e n t government are — •

•

•

T h e government picked areas where corruption is most r a m p a n t — areas that include taxation, construction, the environment, the police a n d food control — a n d asked experts in each to c o n d u c t research into ways to prevent corruption. T h e g o v e r n m e n t plans to establish a n t i - c o r r u p t i o n systems by enacting laws a n d forming preventive organizations so that efforts to excise corruption can continue after the term of the government of the people expires. T h e government plans to drastically increase the participation of citizens in anti-corruption projects. Each a n d every citizen

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should b e c o m e a watchdog. T h e government plans to introduce diverse systems so that officials a n d private citizens can cooperate with each other. • T h e citizens a n d the government have thus j o i n e d forces to launch a nationwide campaign for the c o m m o n goal of cleaning u p Korean society. We will now overview the main characteristics of Kim Dae J u n g Administration's anti-corruption programs.

Presidential Commission on Anti-Corruption (PCAC) The independent presidential anti-corruption commission was created o n September 10 t h 1999, a n d it received a great attention from people. T h e special commission is m a n d a t e d to: • • • • •

help the government establish anti-corruption policies, deliberate on government practices, a n d make recommendations; evaluate the progress of the anti-corruption p r o g r a m m e s at all levels of public organizations; carry out anti-corruption education a n d publicity; support civic organizations' clean-up activities b o t h domestically a n d internationally; a n d c o n d u c t surveys a n d collect materials for the formation of an effective anti-corruption movement.

T h e r e are of course differences of opinions a b o u t the commission a m o n g the ruling party, the opposition party a n d the nongovernmental organizations ( N G O ) . Protection of whistleblowers An advocatory system for the rights of employees to 'blow the whistle' o n fraud, corruption, government waste, a n d violations of environmental laws is used as a corruption-controlling device in most of the developed countries. Kim Dae J u n g ' s administration also

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introduced such a system enforcing civil watchdog procedures leading to punishment if found guilty. In order to encourage the prosecution of people the government specified in the anti-corruption act that any successful prosecution against corruption may be rewarded 5-15% of the government income. Procedures for prosecution and the protection of whistleblowers are specified in the act so that a prosecutor may not be identified, but protected. Punishment is prepared in case the accused perpetrates harm to the prosecutor, or if the prosecution is false.

Financial disclosure of the public officials

When there is a financial change of more than US$10,000 a year in other than the specified salary, a financial disclosure statement for the increase is mandatory. The person should prove the financial increase, and if not, he or she is punished for a dishonest transaction and the non-disclosure of the fact. The power of investigation is strengthened.

Punishment of the corruption-related person

The punishment has become stricter against accepting a gift of money or any other valuables, and even the pardoning and restoration of rights are limited. In case anyone gets dismissed from office for corruption, it is forbidden to restore him within 5 years if the returning office is related to the previous one; or in 15 years if the returning office is the public arena; and in 10 years if he underwent a criminal punishment. A person or a corporate body that offers bribery is punished equally severely as the one who receives bribery — so that the bribery in civil society may be eradicated. For a gift of money or any other valuables the related interest, as well as the gift itself, is to be confiscated regardless of the giver or the receiver.

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Privileges of the former post of retired officials There are some cases in which retired officials who previously worked in the area related with approvals or permissions get a j o b in a related field. H e r e i n they are very likely to act as a corrupt liaison between the public and the private. Thus, the g o v e r n m e n t strictly controls a n d limits the retired public officials who apply for these jobs. W h e n j u d g i n g w h e t h e r the previous j o b of a retired official is related with the new o n e he or she is applying for, his or h e r previous j o b must be considered u p to 3 years before retirement, a n d examined again during the 2 years before retirement. As for the companies a retired official may n o t work for, the g o v e r n m e n t e x p a n d e d the n e t of companies by replacing 'the companies with capital $10,000,000 or m o r e a n d with turnover of $30,000,000 or m o r e ' with the new definition of 'the ones with capital of $5,000,000 or m o r e , a n d with turnover of m o r e than $13,000,000'. Citizen ombudsman system To make the system m o r e easily accessible to citizens a n d to h a n d l e matters objectively from the citizen's p o i n t of view, Kim Dae J u n g ' s Administration a d o p t e d the Citizen O m b u d s m a n system. Focused in the areas that are the most susceptible to corruption — such as the construction sector — citizen o m b u d s m e n are hired to m o n i t o r the procedures. If a given n u m b e r of citizens request inspection (1000 in a central ministry, a n d 500 in a local province), an appropriate inspection agency must c o n d u c t inspection a n d r e p o r t the result. By including a n u m b e r of experts in governmental committees, as r e c o m m e n d by NGOs, it b e c a m e possible to perceive if there is any corruption in the operation.

Evaluation and Problems Like many o t h e r countries, Korea has tried to eradicate corruption t h r o u g h a series of legislative acts a n d systems on its own, b u t failed

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to root out corruption. Most of the policies resulted in a one-time event a n d will e n d at the expiration of the president's term. Soon after President Kim Dae-jung's inauguration in February 1998, he l a u n c h e d a full-scale effort introducing a n d i m p l e m e n t i n g various initiatives to u p r o o t corruption, firstly focusing o n the public sector. T h e comprehensive programs included plans for administrative reforms in corruption-prone areas such as housing, construction, the tax administration, police work, environmental m a n a g e m e n t a n d the food-and-entertainment businesses. In consultation with experts a n d representatives of the private sector, the government provided for alternative policies. However, the anti-corruption act, the prohibition of money laundry, the protection of Whistleblowers, a n d the special prosecutor act are all stillborn d u e to the acute dispute between the ruling party a n d the opposition. Even worse, the Political Reform Act, which is aimed at reforming o n e of the main sources of corruption, has b e e n cast away. Meanwhile, some positive outcomes such as the presidential commission o n anti-corruption (PCAC), Citizen O m b u d s m a n system, a n d the innovation of many administrative regulations set the stage for new anti-corruption policies to be i m p l e m e n t e d . Unlike in the past administrations Kim Dae Jung's administration showed m u c h m o r e strenuous effort to engage in anti-corruption policy making. Nevertheless, the g o v e r n m e n t has its own limits too in that the policies t e n d e d to be inclined towards political p u n i s h m e n t . W h e n the PCAC was established there was a great deal of criticism a b o u t how it should be operated. Responsible directly to the president, the commission plans a n d implements anti-corruption policies a n d provides advice to the President o n issues relevant to fighting against corruption. As the anti-corruption act was established, PCAC became confused in developing ways to improve existing government programs for preventing corruption. This shows the limitation of a temporary body, which includes m e m b e r s from the private sector, in the struggle for h e g e m o n y a m o n g the public prosecutor, the BAI, a n d the C h o n g Wa Dae. In addition, the overlap of the work with the commission for the prevention of corruption (CPC), which

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is an advisory body for the chairman of BAI, resulted in inefficiency of the anti-corruption systems.

New Ways for Anti-Corruption Systems Independence of the board of audit and inspection T h e BAI does n o t have powers of investigation n o r of jurisdiction even t h o u g h it can charge, a n d request p u n i s h m e n t . With this entire backdrop the work of the BAI against corruption is faced with limitations. I n spite of the inspection of the p e r f o r m a n c e of g o v e r n m e n t operations a n d duties of g o v e r n m e n t officials, the BAI was limited to ex post facto measures rather than preventive ones. To be able to investigate the entire range of corruption, the BAI first needs to be strengthened in terms of h u m a n resources. It is doubtful whether the BAI staff of only 850 can cover all the audits a n d inspections of all the public officials in Korea. Kim Young Sam's Administration has i n t e n d e d to revise the laws regarding the BAI, b u t they did too little. Realistic institutions should be introduced. We suggest several ways to create a stronger BAI — •

the BAI needs to be reorganized a n d enlarged. Currently it has only o n e division for inspection of p e r f o r m a n c e of government operations a n d duties of g o v e r n m e n t officials. It is short-staffed too. The current level of 'inspector', which corresponds to a deputy minister, should be u p g r a d e d to the level of minister. A n d to collect information secretly about the corrupt officials, a new task force needs to be installed in the BAI — something like the performance inspection intelligence.

•

to revise the laws a b o u t the BAI the responsibilities a n d rights regarding the inspection of the governmental works n e e d to be r e d e f i n e d in g r e a t e r detail. I n t e g r a t i o n of all t h e s e p a r a t e inspection bodies in each administrative system at all levels should also be considered. A system for the dispatching of inspectors from the BAI to each governmental body needs to be examined.

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T h e BAI should b e able to have its b r a n c h e s spread all over the local provinces. the BAI needs m o r e empowerment. Even though it has the power of audit a n d inspection, it does n o t have the right of investigation. This limits the BAI to cope only with the 'side works', n o t the main part. scientific research a n d analysis should be a d d e d to the workflow of the BAI so as to derive better the direction of inspection policies.

It is quite i m p o r t a n t to evaluate the BAI in a systematic way to search for better implementation of its policies. In addition, it can be debated as to w h e t h e r the BAI should b e l o n g to the executive b r a n c h or to the parliament. Also the BAI should be e m p o w e r e d to chase the bank accounts involved in the corruption; thus the constitution a n d / o r the laws for the BAI n e e d to be reconsidered to determine its i n d e p e n d e n c e . Anti-corruption law In o r d e r to prevent corruption by government employees, the anticorruption law has called for the formulation of a code of c o n d u c t for civil servants, a n d for s t r e n g t h e n i n g of the financial penalty against c o r r u p t officials a n d citizens. This is d o n e by recovering any personal gains (and government losses) caused by corrupt practices, as well as confiscating the bribe itself. Provisions for establishing a n d managing an anti-corruption organization, citizen watch groups a n d public participation in anti-corruption movements, the codes of conduct for public servants, the education a n d public information campaigns to strengthen public awareness against corruption were all included in the law. Presently most of the Asian countries have legislative measures against c o r r u p t i o n . T h e anti-corruption law was established in Singapore in 1960, m u c h earlier in H o n g Kong in 1948, a n d in Malaysia in 1961.

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Recently the Korean national assembly passed the anti corruption bill submitted by the Millennium democratic party o n J u n e 28 t h 2001 after m o r e than five years of discussions. It is expected to go into effect by January 2002 following presidential approval. This law allows for t h e c r e a t i o n of an a n t i - c o r r u p t i o n commission u n d e r t h e presidential office, the protection of whistle-blowers, the people's right to ask for an audit a n d inspection, rewards for r e p o r t i n g corrupt activity, a n d sanctions against officials fired for corruption. According to the law anybody finding evidence of corruption can report it to the commission, while government officials are m a n d a t e d immediately to notify it of illegal acts. People within government organizations r e p o r t i n g c o r r u p t i o n will b e p r o t e c t e d from any discriminatory action in the workplace, t h r o u g h those making false reports face u p to ten years imprisonment. Officials fired for corruption will be b a n n e d from working in any similar posts for five years (Chosun IlBo, 2001). International cooperation T h e public prosecutor's offices (PPO) in J a p a n a n d Italy, o n the basis of their solid a n d rigid i n d e p e n d e n c e , p u t an e n d to the oligarchy in their countries, which h a d lasted for over 50 years after World War II. This was possible because they actively investigated the illegal connections between the politics a n d the businesses such as the Mafia or the Yakusa. T h e PPOs of b o t h countries commonly enjoyed the neutrality, the i n d e p e n d e n c e , a n d the strong support from their people a n d what might be described as their divine dedication to the work. T h e ICAC of H o n g Kong, responsible only to the Chief Executive, secures its i n d e p e n d e n c e from the governm e n t a n d the political hierarchy. T h e ICAC educates people about the issues deriving from corruption, as well as preventing the corruption by its own investigations. In addition, the ICAC metes o u t severe p u n i s h m e n t to corrupt officials, a n d searches for transparent personnel administration. T h e CPIB of Singapore also develops various p r o g r a m m e s to fight corruption a n d institutionalizes these routines. Thus, in o r d e r to maximize the effect of anti-corruption

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policies Korea should observe a n d take into account such foreign success models — especially those successful Asian models. As a consequence we might see the interaction between the ICAC, the CPIB, a n d the AGA of Malaysia. Education p r o g r a m m e s will b e c o m e possible, in which staff are selected from the anti-corruption bodies such as the BAI or the PPO, a n d exchanged with foreign institutions for mutual benefit.

Strategies and efforts to combat corruption in Korea T h e honest national leaders who have lived in the Asian countries generally state s o m e t h i n g like — ' t h e i m m o r a l a n d u n e t h i c a l behavior in the public service is o n e of the most serious problems that obstructs national a n d democratic development' (Gould, 1983). T h e i m p l e m e n t a t i o n a n d operationalization of efficient anticorruption strategies are significant a n d effective. In particular, considering the causes of painful changes in previous political regimes a n d their failures to combat corruption, we may point out clearly that the n e e d for integrated strategies for controlling corruption in Korea is urgent. However, a one-time campaign has b e e n seen to have an extremely limited impact o n the level of corruption in a given polity (Theobald, 1990). T h a t is, we n e e d a sustainable a n d integrated strategy for controlling corruption. These strategies n e e d to be dynamic a n d workable in o r d e r to attain the ultimate goal. Some plausible anti-corruption strategies are n o t e d as follows — 1)

taking the causes of the failures of past regimes into consideration, the c u r r e n t Korean administration is aggressively pursuing comprehensive a n d systematic corruption prevention policies in cooperation with the public a n d business t h r o u g h basic strategies — Promotion of administrative reforms in corruption-prone areas Establishment of anti-corruption infrastructure Expansion of citizen participation in administration a n d anticorruption activities

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Building public support for anti-corruption p r o g r a m m e Systemic implementation a n d enforcement of anti-corruption policies and programs 2)

3)

since 1999, the government has identified 100 priority tasks necessary to prevent a n d eliminate corruption. A m o n g these, 30 tasks are 'general' tasks that should be implemented throughout the government; a n d the other 70 tasks are m o r e specifically aimed at addressing problems in corruption-prone areas such as housing, construction, tax administration, police work, envir o n m e n t a l m a n a g e m e n t , a n d food a n d e n t e r t a i n m e n t business unreasonable a n d excessive regulations can lead to corruption since people are likely to be tempted to bribe government officials in o r d e r to avoid their e n c u m b r a n c e in regulations — a n d government officials t e n d to abuse their a b u n d a n t discretion to their own benefit. These aspects n e e d to be addressed.

Conclusions T h e anti-corruption systems of Asian countries have b e e n reviewed with a focus o n H o n g Kong, Singapore, a n d Malaysia. T h e i r models n e e d e d to be considered a n d linked to those of Korea because the latter suffers from inefficiency a n d a lack of an effective anti-corruption infrastructure. Systematic a n d strenuous activities of the ICAC or the CPIB can be very illuminating for the Korean situation. For example, the ICAC's consistent effort to maintain the trust of people [towards itself] by swearing to root o u t corruption presents a lesson to Korea. T h e great success of the ICAC was possible only with the financial assistance from its 'local' people. Also the strict enforcem e n t of laws by the CPIB in Singapore makes corruption disappear. Similarly the ACA of Malaysia severely punishes the public officials c o r r u p t with bribery or property misappropriation. Corruption being a complex a n d universal p h e n o m e n o n in developing countries it is imperative that preventing corruption should be sought because it threatens the very pillars of the democratic experience in those countries (Werner, 1983). T h a t is why we n e e d

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to carefully observe the reality of corruption, a n d seek an effective anti-corruption strategy. As m e n t i o n e d earlier, Korea, Singapore, Malaysia, a n d H o n g Kong have struggled with their own strategies for controlling corruption. T h e experiences of H o n g Kong a n d Singapore in preventing corruption show that it is n o t really difficult to minimize this aspect if a strong system a n d the political will are present — as well as having their citizen's cooperation. Conversely, although such political will of the top political leaders in the case of Korea is strong, systematic a n d well-organized measures, a n d the efficient and effective anti-corruption discipline for the public officials are still lacking. As a consequence, it has b e e n very difficult to reduce corruption in Korea. In this country, more dramatic incentives to encourage the public officials low morale should be implemented. The government should consider appropriate increases in the official's payment structure (following the example of Singapore). Further, it should resolve p r o m o t i o n problems in its official hierarchy if the anti-corruption strategies are to work better (Kim, 1996). O n e of the main reasons why the corruption is n o t eradicated in Korea is that without any integrated policy for anti-corruption there were just shocking one-time counter measure events. We have found there was n o real coordination network, n o r a working linkage handling the anti-corruption drive, which led to a hegemony struggle a m o n g the relevant organizations. In addition, there was n o educational p r o g r a m m e , n o r any public campaigns that could p r o m o t e awareness against corruption. Now, with such problems in mind, the Korean G o v e r n m e n t should seek for a comprehensive a n d systematic approach in dealing with corruption problems a n d consid e r the successful cases of o t h e r Asian countries.

References ACA (1999) Annual Report. Malaysia, ACA. Alatas Syed Hussein (1999) Corruption and the Destiny of Asia. Kuala Lumpur, Prentice Hall: 33.

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Business Ethics Symposium of Ryoo Sang Young (1999) Corruption Round & the Relationship between Government and Business. Seoul, JoongAngIlbo. Caiden GE (1991) A Dragon's Progress: Development Administration in Korea. West Hartford, Kumarian Press. Chosun Ilbo (2001) June 28 th . Chun Soo II (1999) Research on code of conduct for the public officials — focused on the gift and entertainment. Corruption Journal, 4: 57. CPIB (1999) CPIB Introduction, Singapore, CPIB. Gould DJ (1983) The Effects of Corruption Administrative Performance: illustration for Developing Countries. Washington, The World Bank: 1-41. HakMun Publishing Co. Inc., p. 253. Ham Jung Ho (1996) Human rights and justice. Journal of Korean Bar Association, 8: 100. ICAC (2000) Annual Report. Hong Kong, ICAC. Kim Byung Chul (1996) Foreign anti-corruption systems for the public officials and their operation. Inspection, 46: 20. Kim Taek (1999) Studies on Corrupt Public Officials. Seoul, Hakmoonsa: 20-100. Kim Taek (2000) Legal, Institutional, and Policy Measures against Administrative Corruption. In Proceedings of the Korean Academic Society of Public Administration Conference, Seoul, Korea: 150. Kim Young Jong (1998) Korean Public Administration and Corruption Studies. Seoul, Oreum. Manion Melani (1996) Corruption by design: Bribery in Chinese enterprise licencing. Journal of Law, Economic and Organization 12: 167195. Moon Jung In & Moh Jong Lin (1999) Corruption in Korea. Seoul, Oreum. Park Heung Shik (1999) Logic of Whistleblowing. Seoul, Nanam Press. Presidential Commission on Anti-Corruption (2000) International trends of anti-corruption. In Proceedings of the Anti-Corruption Conference, Seoul, Korea. Quah J (1989) Singapore's experience in curbing corruption. In: Heidenheimer A (ed.), Political Corruption: A Handbook. New Brunswick, Transaction Publishers: 182. Rooke P (1996) Global anti-corruption movements: The role for civil society. PSPD. 2-26. Singapore (2000) Prevention of Corruption Act. Singapore, CPIB.

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Theobald T (1990) Corruption, Development, and Underdevelopment. Durham, Duke University: 2. Werner SB (1983) New directions in the study of administrative corruption. Public Administration Review 43: 146-154. Wraith R & Simpkin E (1968) Corruption in Developing Countries. New York, WW Norton and Company: 182.

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Chapter 15

An Exploration of the Dynamics of the 'Corrupter' and the 'Corrupted': Developing Cutting Edge Practices to Prevent Seduction

Lionel Stapley

Introduction Probably the principal reason for the widespread c o n d e m n a t i o n of bribery is its i n h e r e n t inequity; it is obviously unfair to have special payments, a n d secret influence decide issues that should be decided o n their merits. However, it is suggested that the reason that bribery is so widely c o n d e m n e d , may also be seen as the reason for its attraction. Faced with the possibility that a bribe can guarantee success, as opposed to facing u p to the doubts a n d difficulties involved in competing in the usual manner, some may find bribery so seductive that they will gladly succumb to the temptation. T h e circumstances or effects of the environment that they find themselves in may seduce others. In general terms, the purpose of this chapter is to explore some of the dynamics c o n c e r n i n g the relationship between the ' c o r r u p t e r ' a n d the ' c o r r u p t e d ' a n d to help in the development of cutting edge practices that will reduce the chances of seduction into bribery. Corruption is n o t an individual activity b u t o n e that involves two p e o p l e or two g r o u p s a n d we t h e r e f o r e n e e d to e x p l o r e the subjective state of b o t h parties to the corrupt act. Starting from a cultural relativism perspective, I shall seek to provide an understanding

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of difference a n d how this can lead to misconceptions a n d behaviour such as stereotyping. But, to gain the d e e p e r understanding required it is necessary to explore what we m e a n by values, attitudes a n d beliefs. This will provide a basis for some sort of u n d e r s t a n d i n g of the problems b o t h parties face w h e n working with those from a different c u l t u r e . But this will n o t b e c o m p l e t e until we also u n d e r s t a n d s o m e t h i n g of the environmental influences o n those from the west that are doing business in Asia. Bribery is considered reprehensible. Even in Asian a n d o t h e r countries where it is alleged to be c o m m o n , most people deplore it, except at the lower levels of some government bureaucracies where bribes are regarded as part of the compensation system, almost o n a level with commissions or gratuities. No matter which society we are referring to we can be sure that bribery is c o n d e m n e d because of its i n h e r e n t inequity. All ethical systems recognise the n e e d for equity; all ethical systems deplore the practice of bribery. Yet, when a bribe is expected as part of a transaction it still presents us with a considerable moral dilemma. What, then, we might ask is right a n d ethical a n d just? These terms, a n d that question are going to b e c o m e m o r e i m p o r t a n t in the future than in the past as societies t h r o u g h o u t the world have b e c o m e m o r e crowded, their economies m o r e competitive, a n d their technologies m o r e complex. We might well consider that the ethics of m a n a g e m e n t — the determination of what is right, p r o p e r a n d just in the decisions a n d actions that affect o t h e r people — goes beyond simple questions of bribery, theft a n d collusion. It really needs to focus o n what societal a n d organisational relationships are — a n d o u g h t to be — with employees, customers, shareholders, creditors, distributors, a n d neighbours — m e m b e r s of the societies in which we operate. T h e concept of ethics is derived from the Greek word ethos, which has b e e n loosely translated as m e a n i n g internal character. It has b e e n defined as a process by which individuals, social groups, a n d societies evaluate their actions from the perspective of moral principles a n d values. This evaluation may b e o n the basis of traditional convictions, of ideals sought, of goals desired, of moral

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laws to be obeyed, or of an improved quality of relations a m o n g h u m a n s a n d with the environment. W h e n we speak of 'ethics' a n d ethical reflection, we m e a n the activity of applying these various yardsticks to the actions of persons a n d groups. A general inference to be drawn from this definition is that ethics focuses o n h u m a n activity d o n e knowingly a n d to a large extent willingly. However, to have a d e e p e r u n d e r s t a n d i n g we n e e d to have an awareness of the way these processes develop in the individual. Although the terms 'ethics' a n d 'values' are often used interchangeably, distinctions can be m a d e between the two concepts. O n e distinction is that ethics tends to focus o n the c o n d u c t of individuals, whereas values represent the fundamental beliefs that individuals hold a b o u t conduct. In o t h e r words, values are the u n d e r l y i n g beliefs a n d attitudes that h e l p d e t e r m i n e c o n d u c t . Distinctions m a d e between these two concepts suggest that rather t h a n viewing t h e m as interchangeable their relationship might be better described as i n t e r d e p e n d e n t . Values a n d associated notions such as attitudes a n d beliefs will be looked at in some detail later b u t for now the concentration will stay with ethics. T h a t there are differences between various groups as to ethics (and values) is n o t in question. But in terms of what is right a n d ethical a n d just, these differences create considerable difficulties. O n e way of trying to u n d e r s t a n d these differences is to look at t h e m from an ethical relativism perspective.

Ethical Relativism Moral standards of behaviour differ between groups within a single culture, between cultures a n d between times. Both sides base their arguments o n a belief system as to what is best for the national society, but, of course, these beliefs may well differ. T h e question in ethical relativism is n o t w h e t h e r different moral standards a n d ethical belief systems exist; they obviously do, a n d we all have experience to confirm that fact. T h e question is w h e t h e r there is any commonality that overrides the difference. T h e fact that there

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can be two different moral standards, both of which can be considered to be right, is confusing to many people. T h e p e o p l e s a n d societies of t h e world are diverse; t h e i r institutions, fashions, ideas, m a n n e r s , a n d mores vary tremendously. This is a simple truth. Sometimes an awareness of this diversity a n d the degree to which o u r own beliefs a n d habits mirror those of the culture a r o u n d us stimulates self-examination. In the realm of ethics, familiarity with strikingly different cultures has led many people to suppose that morality itself is relative to particular societies, that right a n d wrong vary from culture to culture. O n e of the problems is about trying to understand how we should live with each o t h e r a n d with ourselves. Clearly this is a p r o b l e m that we n e e d to study. But, some people are so struck by the difficulty of reconciling differences of view on moral matters, especially between people from different cultures, that they a d o p t a position of moral relativism; they c o n t e n d that t h e r e are n o m o r a l truths to b e discovered; n o such thing as the difference between right a n d wrong b u t simply the difference as drawn by this society or that. Thus, according to this relativist view, there can be n o critical enquiry into what we should think is ethically defensible, only empirical enquiry into what we or others, d o h a p p e n to think. But why should we agree with this view? T h e r e is n o good reason to believe it: the m e r e fact that there is disagreement, even d e e p d i s a g r e e m e n t , o n m o r a l m a t t e r s between different cultures is consistent with the truth of relativism b u t also with its falsity. T h e r e are plenty of reasons to disbelieve it, since if it were true we would have to a b a n d o n many of o u r convictions, such as, for example, the idea that there can be n o moral progress — a n d regress — a n d that some practices accepted in o t h e r societies a n d n o t o u r own are less — or m o r e — enlightened than our own. Part of the appeal of the relativist stance is that it cuts the g r o u n d from u n d e r the feet of those who adopt attitudes of moral superiority towards people of different cultures a n d customs. Yet just because we reject the relativist view a b o u t the impossibility of c o m p a r i n g customs a n d practices critically, we n e e d n o t c o n d o n e ignorant smugness a n d prejudice towards o t h e r people's strange customs.

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Overriding all cultural differences there is also a g r e e m e n t o n moral a n d ethical issues. As was stated above, n o matter which society we are referring to we can be sure that bribery is c o n d e m n e d because of its inherent inequity. All ethical systems recognize the need for equity; all ethical systems deplore the practice of bribery. T h e fact that people are different creates considerable problems. In some instances it may be fairly obvious why they are different b u t in all situations it will be helpful to know how they have come to the position they are at. In effect, we still n e e d to gain a d e e p e r u n d e r s t a n d i n g of the differences of view on moral matters. We n e e d to try to u n d e r s t a n d the processes that have resulted in their diverse development. To d o so, it will be helpful to take a step further by exploring how we develop values, attitudes a n d beliefs that lead to decisions about what is ethical right a n d just.

Values, Attitudes and Beliefs T h e primary m e a n i n g of integrity comes from its Latin ancestor integer, 'whole'. By the middle of the sixteenth century integrity h a d also acquired its moral sense: 'soundness of moral principle; the character of u n c o r r u p t e d virtue; uprightness, honesty, sincerity' Webster's dictionary e x p a n d e d this sense to embrace an ' a d h e r e n c e to a code of moral, artistic, or o t h e r values'. Serving the truth, in the fuller sense as a value close to goodness a n d o t h e r t h a n self, is central to the concept of integrity. It means accepting what is true, right or good from whatever quarter it comes. T h e subject matter of ethics is personality, a n d only in reference to the personality structure as a whole can value statements be m a d e a b o u t single traits or actions. T h e virtuous or the vicious personality, rather than single virtues or vices, is the true subject matter of ethical enquiry. H u m a n s are able to have an awareness of themselves as separate entities; an ability to r e m e m b e r the past, to visualize the future, a n d to d e n o t e objects a n d acts by symbols; their reason to conceive a n d u n d e r s t a n d the world; a n d their imagination t h r o u g h which they reach far beyond the range of their

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senses. To understand this process we need to have an appreciation of the way our character is developed and molded. By means of the primitive processes of splitting, projection and particularly of introjections a rich world of inner objects, or representations in the mind of external objects, is built up; be these 'objects' significant people, values, feelings or concepts. Early introjections (taking in of external objects), since they are virtually all the infant has, are particularly potent, and the inner 'objects' (the mental images) they create are never forgotten. These early introjections, which of necessity are of parents or parental figures, create an inner object commonly referred to as the conscience or in technical terms, the superego. The introjection of the 'good' parent creates what I shall refer to as the ideal conscience, that is, a sense of ideals and positive morality — a pattern of what to do. And introjection of the 'bad' parent creates what I shall refer to as the persecutory conscience, a sense of guilt and negative morality — of what not to do. Initially, conscience is built up by identifying with, that is forming and taking in and retaining mental images of parental figures. As will be further explained, this same sort of process may occur later in life in exchanges between other authority figures such as schoolteachers and managers in organizations. Attitudes have been defined as 'relatively lasting organizations of feelings, beliefs, and behavior tendencies directed towards specific persons, groups, ideas, or objects. An individual's attitudes are a product of the person's background and various life experiences. As with personality, significant people in a person's life — parents, friends, members of social and work groups — strongly influence attitude formation. Your attitudes are made up of your beliefs and feelings toward someone or something. You can't observe attitudes per se but attitudes serve as a guide to behavior. The behaviours associated with an attitude can be identified by anyone who observes interaction between people. Thus, attitudes are very important to you because they dictate the way you interact with and treat other people or groups.

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When evaluative feelings are attached to personal beliefs, attitudes are formed. An attitude is a conscious and selective judgment about a person, object, concept, or event. An attitude provides a mental predisposition to behave with consistency toward its subject. As forms of cognitive learning, attitudes tend to endure or persist over time. But attitudes can be changed. The changeable character of attitudes is important when we seek to manage performance, reduce conflict among groups, shape a corporate culture, or adopt ethical behavior. Attitudes can apply to general classes of objects or groups, or to a specific person or idea. We can appreciate, therefore, that attitudes will exert a predictable influence on our behavior. Attitudes involve three components: cognition, affect, and behavior. These are expanded on below: Cognition. Attitudes involve a cognitive component or the beliefs, opinions, knowledge, or information held by the individual. A cognition is the belief or accepted data base that is conceptualized about an object, person, event or ideal. Beliefs can be transmitted through folklore or education. Alternatively, the database can emerge from direct experience. Affect. Attitudes involve an affective component or the feelings, sentiments, moods, and emotions about some person (s), idea, event, or object. The affective component is the evaluation or judgment attached to the cognitive belief or data. Affect can involve liking or despising some people or some things. Usually affect is the process of attaching an emotional sentiment (either acceptance or rejection) to the object, person, event or idea. Behavior. Attitudes involve a behavioral component or the intention or predisposition to act. Once the beliefs and affective evaluations are made, overt behaviors should follow consistently. These components do not exist or function separately; thus an attitude represents the interplay of a person's emotions, cognitions, and behavioral tendencies with regard to something — another person or group, an event, an idea and so on — in the individual's

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social world. For example, where someone, or some group, holds a very strong negative attitude about corruption, they will most likely n o t wish to conduct business with s o m e o n e or some g r o u p who are considered to be corrupt. Conversely, where someone, or some group, is ambivalent a b o u t corruption it will n o t affect their dealings a n d relationships with anyone else or any o t h e r g r o u p n o matter what their reputation a n d practice is regarding corruption. Beliefs a n d values often combine to form all-encompassing ideals called values. A value is established when a belief or concept is e n d u r i n g a n d provides a personally preferable m o d e of c o n d u c t or end-state of affairs. Often a value is the sum total of many attitudes that together provide personal c o m m i t m e n t a n d consistency, for example, 'honesty' a n d 'fairness' are values. We develop what we might refer to as personal value systems, by organizing a constellation of beliefs concerning preferable modes of c o n d u c t or existence. Since values are m o r e general or abstract than attitudes, their influence o n behavior tends to be less direct. Like attitudes, values are learned a n d may change as a result of societal or organizational experience. We conceive of values as normative propositions, held by individual h u m a n beings of what h u m a n b e i n g s o u g h t to desire, e.g., t h e d e s i r a b l e . T h e y a r e supported by internalized sanctions (our conscience), as described above, a n d function as: (a) imperatives in j u d g i n g how one's social world o u g h t to be structured a n d operated, a n d (b) standards for evaluating a n d rationalizing the propriety of individual a n d social choices. This approach emphasizes that values are normative standards by which h u m a n beings are influenced in the choice of their actions. T h e primary function of values in terms of organizational behavior is that they serve as determinants a n d guidelines for decision-making a n d action. Although of necessity, values have their origins in the influence of parents or parental figures, this dynamic continues t h r o u g h life with societal influences b e c o m i n g m o r e influential as time goes by.

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The Influence of Society It is significant that many of the value-attitude systems, which are shared a n d transmitted by the m e m b e r s of a society, are i m p o r t a n t to the well-being of the society rather than to that of the individual. T h e individual acquires such desirable b u t personally disadvantageous value-attitude systems as a result of the social rewards that c o m e with their assumption a n d incorporation into specific patterns of overt response. T h e goal of eliciting favorable responses from others stands side by side with every o n e of the individual's m o r e immediate a n d specific goals, a n d n o pattern of behavior can be completely successful a n d rewarding unless it serves to achieve both. T h e personality is n o t only a c o n t i n u u m b u t is also a c o n t i n u u m in a constant state of c h a n g e . T h e process of developing new responses a n d extinguishing old ones goes o n t h r o u g h o u t the lifetime of the individual. W i t h o u t such flexibility it would be impossible to survive in a world in which n o t only the external e n v i r o n m e n t b u t also the individual's own potentialities are in a constant state of flux. However, there seems to be a fairly close correlation between the ease with which a particular response can be extinguished a n d its position in the scale of specificity. In general, the m o r e specific a response the easier it is to extinguish it. Owing to environmental or o t h e r changes, a response that is linked with a single situation or with a very small n u m b e r of situations, can easily b e c o m e subject to the conditions that will lead to extinction. More generalized responses, o n the o t h e r h a n d , are likely to be rewarded in connection with some situations even when they are u n r e w a r d e d or p u n i s h e d in connection with others. It is a c o m m o n experience that while specific patterns of overt behavior are fairly easy to extinguish, value-attitude systems are extremely h a r d to extinguish. Such systems tend to survive even when their overt expressions have b e e n inhibited in many situations a n d to reassert themselves with almost u n d i m i n i s h e d vigor when new situations involving the particular value factor arise.

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Perhaps the most outstanding and most continuous of human psychic needs is that for emotional response from other individuals. The term emotional response is used advisedly since the eliciting of mere behavioral responses may leave this need quite unsatisfied. We all know what it means to be alone in a crowd. It is this need for a response, and especially for a favorable response, which provides individuals with their main stimulus to socially acceptable behavior. People abide by the mores of their societies quite as much because they desire approval as because they fear punishment. (For a thorough discussion of attachment needs see Marris, 1974). The need for emotional response from others is so universal and so strong that many social scientists have regarded it as instinctive in the sense of being inborn. Whether it actually is so or whether it is a product of conditioning is a problem that may never be solved. What we can say is that individuals are so completely independent on others during infancy that they cannot survive without eliciting responses from their parents or other carers. There is much good evidence that young infants require a certain amount of emotional response for their well-being. Indeed, as we are reminded by the eminent psychoanalyst Ferenci, 'Babies who aren't loved don't live'. Since all individuals go through the experiences of infancy, the question of whether this need is innate or acquired is really an academic one. In either case its presence is universal. To summarize, our values and attitudes together form a stimulus response configuration that I have referred to as a value-attitude system. Once established in the individual, such systems operate automatically and, for the most part, below the level of consciousness. A single system of this sort may underlie several different patterns of overt behavior, providing motivations for all of them. Thus the individual's value-attitude system relative to cruelty may lead him to withdraw in one situation or to interfere in another. The functional importance of value-attitude systems derives primarily from their emotional content. Behavior, which is not in accord with the individual's value-attitude systems, elicits responses of fear, anger, or at the very least, disapproval. This holds equally

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whether the behavior is his own or that of others. T h u s an individual who performs an act contrary to o n e of his own established valueattitude systems will experience considerable emotional disturbance b o t h before a n d after. In most cases h e will have such a reaction even t h o u g h h e knows that the act will n o t entail p u n i s h m e n t . This disturbance will diminish with repetitions of the act, b u t will reappear with each new situation involving the particular system. Similarly, o t h e r peoples' acts, which are contrary to o n e of these systems, will elicit emotional responses even w h e n they d o n o t t h r e a t e n the individual in any way. This projective aspect of valueattitude systems will be familiar to anyone who has h a d to adjust him or herself to life in an alien culture. Even when the m e m b e r s of such a society are completely friendly a n d co-operative, merely observing certain of their behavior patterns is likely to make the outsider exceedingly uncomfortable. Which, basically, brings us to the point of this chapter, the n e e d to explore the subjective state of b o t h parties to the c o r r u p t act.

Analysis and Discussion From the foregoing we can appreciate the influence of b o t h societal a n d organizational dynamics o n the processes that are occurring. I should now like to concentrate for a while o n organizational aspects. I shall start with the notion that it is helpful to view organizations as processes of h u m a n behavior. Organizations exist because people create a n d sustain t h e m and, therefore, it is the m e m b e r s of the o r g a n i z a t i o n t h a t we n e e d to r e f e r t o . Essentially, h u m a n organizations have n o structure o t h e r than the patterns of behavior that are also their internal functions. W h e n these p a t t e r n s of behavior stop, the organization ceases to exist (Khan, 1976). From this view of organizations as processes of h u m a n behavior it therefore follows that they are contrived, a n d being of h u m a n construction they are infinitely susceptible to modification. They d o n o t conform to the laws of growth a n d d e a t h that characterize biological organisms; there is n o particular size a n d shape they must attain, or lifecycle they must follow. Functional branches or

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systems do not hold organizations together, the cement that holds them together is ultimately psychological. In order that the organization is to exist, people must be motivated to engage in the stable recurring patterns of behavior that define the organizations and give them continued existence (Stapley, 1996: 50). It is also helpful to go beyond this and to view organizations as a psycho-social processes. That is, we need to conceptualize the organization as a process of h u m a n behavior that is both psychological and social at the same time. At the 'social' level we need to analyze the technological, economic, sociological and political factors; the products and services the particular organization provides; and, the organizational structures, strategies, and procedures that management have created; that together comprise the everyday life of the company. These aspects of the processes of human behavior may be regarded as the 'external' realities of the members of the organization. At the 'psycho' level we are talking about the subjective experience of members of the organization: about what goes on in the minds of members of the organization. This may include the ideas and ways of thinking about how they perceive the external realities and about how they shape their action towards them. Such actions will be influenced by their beliefs, values, hopes, anxieties, and the defense mechanisms they employ. Put another way, we are referring to the 'internal' realities of the members of the organization. It will be appreciated that these two levels — the external and the internal worlds of the members of the organization — are in continual interaction and it is false to divide them, but, for clarity of analysis it will be helpful to do so. In following paragraphs this approach will be applied to both Asians and those from the west who are doing business in Asia, but it may be helpful if I first refer to a consideration of the way our perceptual process works. In all circumstances, whether Asian or western, and no matter what the particular experience is we need to appreciate that unless we are able to classify our experience on some basis of similarity we

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will be unable to make sense of that experience. T h e way that we d o this is to categories data perceived by our sensory processes according to o u r previous knowledge a n d e x p e r i e n c e . By the process of perception we impose some structure on new input, c o m p a r e it with a pool of old information, a n d t h e n either a d d to it or eliminate it. For all of us, the basis for o u r perceptive process is the pool of internalized information that in turn provides the basis for o u r selfconcepts, which are the individual's views of himself. They begin in childhood a n d expand through object relations first with the m o t h e r a n d then with other significant family members. T h e object relations with the parents provide a continual psycho-social basis for learning what is pleasurable a n d what is distressing. Whatever culture we are part of (be that societal or organizational), we seldom if ever enter any general situation which n o h u m a n has ever experienced in the moral field. For morals are b o u n d u p with interpersonal a n d social relationships which have b e e n with us since the dawn of civilization. T h e perceptive process means that we try to place a particular situation into its appropriate class of general situations. Otherwise we can apply n o principles or rules to it. S o m e t i m e s these rules may b e g r o u p e d t o g e t h e r into codes. We can identify five kinds of codes, which will almost certainly overlap with each other: personal, group, social, legal a n d professional codes. Personal codes. From o u r family life a n d early education we evolve our own personal code of ethics, which may or may n o t be consciously formulated as a set of rules e.g., 'always speak the truth'. We modify this personal code as o u r experience of life's situations accumulates. Group codes. Groups that remain together for any length of time develop their own ' g r o u p personality' a n d code of morality. T h e latter is enforced by various degrees of social approval or pressure, culminating in ostracism for the extreme deviants. Consequently the individual faced with a moral p r o b l e m may find o n e possible answer in the unwritten code of ethics of a g r o u p to which h e belongs.

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A group's influence o n the moral standards of an individual m e m b e r may be for the better or for the worse. G r o u p codes are vitally i m p o r t a n t w h e n any c o m m o n action must be taken. For it is the value a n d ethical practices of the g r o u p a n d n o t an individual that will inform the consensus or majority decisions. Just as the individual leader or m e m b e r can influence a group's morality, so also h e is influenced by it — for better or worse. Social codes. Looking beyond the individual a n d the group, we may discern a n o t h e r range of ethical guidelines in the unwritten social attitudes a n d n o r m s of the day: the social code. We can distinguish this from the formal legal code — which at least reflects a society's moral assumptions — by emphasizing its unwritten form, being m o r e in the nature of those n o r m s in groups that are identified by social psychologists. In contrast to the legal code these standards have n o o t h e r authoritative backing than the pressure or force of public opinion, a n d its ultimate sanction again is social hostility leading to ostracism, that silent prison without bars or warders. This social code of morality, often derived from religion, shares in c o m m o n with a n individual's own c o d e for behavior, two handicaps. First, it is difficult to apply in complex professional situations. Secondly, the rate of technological a n d social change has speeded u p to such an extent that they often a p p e a r to be out-dated. Legal codes. O n e solution is to make the society's morality applicable to general situations by enacting it into a carefully devised legal code. Law is the body of rules, w h e t h e r formally enacted or customary, which a state or community recognizes as binding o n its m e m b e r s or subjects. T h e law is n o t morally neutral, for justice itself is a moral value. Moreover, the law recognizes the morality that emerges in a society from instinctive preference a n d free debate. Its function is to occupy new g r o u n d only w h e n it is consolidated. It is for the legislature to

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determine when the time has come to consolidate new ideas into the consensus and likewise to expel the old. Therefore an individual hesitating about the morality of a proposed action may well find some moral guidance in the law of the land. Professional codes. Professional codes have some affinities with personal, group, social and legal codes, yet they retain a character of their own. Those occupying professional roles find themselves in general situations where the rules and principles of social or personal codes do not offer enough clear guidance. To cope with these uncertainties the professions concerned have evolved their own code of good conduct. Broadly speaking, these define the moral behavior which is expected of its individual members by the profession as a whole, (bearing in mind its standing or status) in society and the need to maintain sufficient public trust for the particular work to be done effectively. Therefore a professional code of ethics characteristically has both practical and moral ends in mind. It contains the profession's wisdom on how the inherent tensions between values that arise in its recurring general situations may be best resolved. The good news is that all attitudes, beliefs and values are capable of modification and change. Although there will be strong internalized values that have been influenced from childhood, through family, group, societal, legal and professional experiences; none of this is set in stone and all values are capable of change. However, for change to occur there is a need for self-reflection and the adoption of new values that replace the previous ones. In some circumstances this will be more difficult than others; in particular, it will be difficult when to change one's values means isolating oneself from others. It will be recalled that the goal of eliciting favorable responses from others stands side by side with every one of the individual's more immediate and specific goals, and no pattern of behavior can be completely successful and rewarding unless it serves to achieve both. All the while we are in our host culture we will share most, if not all, of the five kinds of codes referred to above, with our families,

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friends, a n d work colleagues. But, even in o u r own native country, this may n o t be the case when we m e e t people from different family or societal groupings, or from different professions a n d organizations. And, it will almost certainly be far less likely when we are required to work in a n o t h e r country, especially o n e with a considerably different culture from that which we are used to. In these circumstances, it may be particularly difficult to control a n d m a n a g e o u r emotions to the extent that we can listen to a n d u n d e r s t a n d the o t h e r party to o u r business activity. Learning a b o u t the dynamics of life is a matter that has to be considered in the context of a relationship between two people, or two groups of people. As Gregory Bateson (1979), pointed out, it is correct (and a great improvement) to begin to think of the two people to the interaction as two eyes, each giving a monocular view of what goes o n a n d together giving a binocular view in d e p t h . This d o u b l e view is the relationship. Relationship is n o t internal to the single p e r s o n . I n d e e d , it w o u l d b e n o n s e n s e to talk a b o u t ' d e p e n d e n c y ' or 'aggression' or ' p r e j u d i c e ' a n d so o n as an individual activity. We c a n n o t be d e p e n d e n t unless there is s o m e o n e to be d e p e n d e n t on; we cannot be aggressive unless there is someone to b e aggressive with; we c a n n o t b e prejudiced unless there is s o m e o n e to be prejudiced about; and, we c a n n o t be corrupted unless t h e r e is s o m e o n e to b e c o r r u p t e d by. All such words have their roots in what h a p p e n s between persons, n o t in something-oro t h e r inside a person. W h e n two people or two groups of people c o m e together to d o business, each party will bring with t h e m their own values regarding corrupt activity. W h e n each of t h e m is confronted with the possibility of corruption, their perceptive process will compare the information with their pool of internalized information which will include the codes (or absence thereof) u n d e r the above five categories. T h e likely reaction is b o u n d to differ for both the Asian a n d western parties to the relationship. An analysis of how a n d why each adopts their different a p p r o a c h is the matter that will help us to know the sort of responses we n e e d to develop. I shall start with the Asian response a n d t h e n move to the western.

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Asian Corruption Asians who are party to this relationship, a n d doing business in their own country: are n o t removed from their culture; and, are still s u r r o u n d e d by the social or external objects that they rely u p o n for support. T h e organizational structures, strategies, a n d procedures that organization m a n a g e m e n t has created; that together comprise the everyday life of the company will still be available to them. Such actions will be influenced by their beliefs, values, hopes, anxieties, a n d the defense mechanisms they employ. In o t h e r words, their internal objects will also be available to them. What they d o a n d the action they take may be apparent, b u t why they d o it will be influenced by their internal values. If the shared values of Asian culture d o n o t include a belief that corruption is wrong; if there are n o internal or social sanctions against corruption; it will be an accepted practice. Even if being part of the legal code p r o h i b i t s c o r r u p t i o n ; g r o u p , societal, a n d cultural influences will be greater. This may be especially so where there is corruption o n the part of officials a n d those charged with the responsibility of law enforcement. What we are in effect saying is that where corruption is part of the organizational a n d societal culture, individuals will a d o p t the same values because of their a t t a c h m e n t a n d affiliation needs. At an individual level they may understand that corruption is morally wrong a n d that it is contrary to the law. However, the fear of p u n i s h m e n t does n o t match the fear of being ostracized. This a l l - i m p o r t a n t n e e d for a t t a c h m e n t will o v e r r i d e o t h e r n e e d s a n d values. As was stated above, the most outstanding a n d most continuous of o u r psychic needs is that for emotional response from o t h e r individuals. It is this n e e d for a response, a n d especially for a favorable response, which provides individuals with their m a i n stimulus to socially acceptable behavior. People abide by the mores of their societies quite as m u c h because they desire approval as because they fear p u n i s h m e n t . If we are to bring about a change in Asian values we n e e d to bring about a culture change.

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We may view ethics as a process by which individuals, social groups, a n d societies evaluate their actions from the perspective of moral principles a n d values. And, ethical behavior means the activity of applying these various yardsticks to the actions of persons and groups. All t h e while ' t h e way things are d o n e a r o u n d h e r e ' includes corruption we can be sure that the moral principles a n d values are n o t strong e n o u g h to prevent such behavior. Elsewhere, I have described (see Stapley, 1996; Stapley, 2001), what is required to bring about a change in societal culture. In this instant, what is required is a change to a culture that will result in corruption being internalized a n d viewed as unacceptable. This will only h a p p e n if those in positions of authority in Asia take steps to change that culture by developing official strategies, structures, a n d behavior at the highest levels. This is likely to be a slow process, and, even with the best of will a n d the greatest effort, it will take several years. Being part of 'the way things are d o n e a r o u n d h e r e ' presents those c o n c e r n e d with a difficult a n d persistent problem. O n e that will only be effectively dealt with if there is concerted, consistent a n d continuing activity aimed at gaining an acceptance of institutionalized ethical behavior. But, of course, there are two parties to the corrupt act a n d the o t h e r party can play a significantly helpful role. Positive action can be taken in regard to those from the west who may b e c o m e ' c o r r u p t e d ' . G o v e r n m e n t leaders, top managem e n t staff, and, academic scholars, in the west can influence their own personnel who are traveling to d o business in Asia in a m o r e direct m a n n e r a n d thus ensure that, as far as possible, this p r o b l e m is n o t p e r p e t u a t e d by the weakness or frailty of their own staff; or by the attraction a n d seduction of wrong-doing, o n the part of the corrupted. It is to those from the west doing business in Asia — the o t h e r party to the relationship — that I shall now t u r n to. F o r t h e m this may b e a totally different e x p e r i e n c e a n d above all, we n e e d to u n d e r s t a n d the effects on t h e m of Asian environmental influences.

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Western Corruption As a convenient starting p o i n t we n e e d to be aware that in every change there is a loss of the currently known. What h a p p e n s to the personality w h e n we go t h r o u g h a process of dramatic socialization? From the m o m e n t of birth a child is related to the world a r o u n d him, a n d the roles that a person performs in life are m a d e u p of a complex series of focal action patterns that constitute a repertoire of p r o b l e m solving solutions. This repertoire because it is based o n experience, assumes that reasonable expectations of the world will be fulfilled. As time goes by, the individual's stock of 'solutions for all eventualities' grows greater, a n d novel solutions b e c o m e rarer. Any major change will affect this situation. In such a case, the change n o t only alters expectations at the level of the local action patterns b u t also alters the overall plans a n d roles of which these form a part. Such a change is a h u g e upheaval a n d o n e that could result in disintegration — it is a world which is in chaos. T h a t I require the continuity, consistency a n d confirmation of my world that Kernberg (1966) refers to, is without doubt. If the possessions a n d roles by which we gain o u r continuity, consistency a n d confirmation are shared, t h e n we can assume that if we lose o u r ability to predict a n d to act appropriately, o u r world will begin to crumble, a n d since my view of myself is inextricably mixed u p with my view of the world, that too will begin to crumble. If I have relied u p o n o t h e r people or possessions to predict a n d act in many ways as an extension of myself t h e n the loss of those people or possessions can be expected to have the same effect u p o n my view of myself as if I h a d lost a part of myself. In o t h e r words, if I am in an alien environment I am without my usual support. T h e missing e x t e r n a l p a r t of o u r e n v i r o n m e n t (the socio) is reasonably obvious to the individual in an alien culture b u t we also n e e d to be aware that the internalised objects of the internal part o u r environment (the psycho) still travels with us. These include, at the m a c r o level, national values a n d attributions t h a t will b e significantly different d e p e n d i n g o n o n e ' s cultural background. At the micro level, these will b e m o r e about

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those influences that derive from the culturally patterned behaviour of significant individuals, starting from w h e n we were children. Thus, the experience of working in a society where our stock of 'solutions for all eventualities' is found to be ineffective, presents us with h u g e problems. I have described elsewhere (see for example, Stapley, 1996; Stapley, 2001), that o n e of the effects of entering an alien culture which creates the experience of 'culture shock', is that we lose o u r social or external objects which are normally available to us a n d which we use for o u r projections w h e t h e r good or bad. In these circumstances, it seems that we are m o r e likely to make use of o u r internal objects for the projection of feelings such as those of a n g e r a n d inadequacy. This leads to the reported experiences of those suffering culture shock — the comparison to dying, anxieties about body health, an inability to c o m m u n i c a t e , a n d of feeling like helpless children. Faced with these extreme forms of anxiety there are several courses of action we can take. O n e frequently a d o p t e d a p p r o a c h is to deal with the anxiety provoking material by repression — the exclusion of any direct influence o n consciousness or o n behaviour. Such an o u t c o m e of conflict, in which o n e tendency is driven down to the unconscious a n d confined there by the other, is usually designated by the technical term 'repression'. T h e result being that the individual then normally becomes quite unaware of the exis-tence of any such tendency within their mind. For some in this situation, the anxiety provoking material may be the emotional disturbance arising from the conflict with their conscience or values regarding corruption. In t h e s e c i r c u m s t a n c e s , s o m e individuals may r e s p o n d by totally excluding any notion of conscience from their minds a n d behaving in an uncaring a n d unethical manner. Thus, the individual may be easily seduced into all m a n n e r of corrupt behaviour. In this state, there will be an absence of any sense of ideals a n d positive morality — a pattern of what to do; or, sense of guilt a n d negative morality — of what n o t to do. In this situation, faced with the possibility that a bribe can guarantee success, as opposed to facing

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up to the doubts and difficulties involved in competing in the usual manner, some may find bribery so seductive that they will gladly succumb to the temptation. There can be little doubt that those who are subject to 'culture shock' are extremely vulnerable. This extends beyond those weak characters referred to above and may literally include anyone subject to this experience. All subject to the unsettling and anxiety provoking situation of culture shock do not have the continuity, consistency and confirmation of familiar external objects but more than this, they may also discover that internal objects such as their values are at odds with those of the culture of the society and organisations they are now working in. Most people in the west are not normally involved in bribery and other forms of 'serious' corruption. They have developed values that consider bribery to be reprehensible and non-ethical. Here, they may find that their values regarding corruption are being ignored, dismissed, and perhaps derided by those they are working with. In this vulnerable state — which at worst will have reduced them to feeling like helpless children — they will be desperately seeking to satisfy that most vital of all human needs — the need for attachment to other human beings. It will be recalled that the most outstanding and most continuous of human psychic needs is that for emotional response from other individuals — the need for attachment. It is this need for a response, and especially for a favourable response, which provides the individual with his main stimulus to socially acceptable behaviour. The individual acquires such desirable but personally disadvantageous value-attitude systems as a result of the social rewards that come with their assumption and incorporation into specific patterns of overt response. The goal of eliciting favourable responses from others stands side by side with every one of the individuals more immediate and specific goals, and no pattern of behaviour can be completely successful and rewarding unless it serves to achieve both. People abide by the mores of their societies as much because they desire approval as because they fear punishment.

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Faced with an unfamiliar world, one that is experienced as excluding them at multiple levels — language, external objects, and values — those from the west may feel that they are deprived of this primary need for attachment. The need for emotional response from others is so universal and so strong that they may be so desperate that they are prepared to do almost anything to achieve this need. This may include giving up on values that consider bribery to be reprehensible and non-ethical. In other words, to identify with the values of the other party in an attempt to gain acceptance and inclusion. This sort of behaviour might also be referred to as 'going native'. The goal of eliciting favourable responses from others stands side by side with every one of the individuals more immediate and specific goals, and no pattern of behaviour can be completely successful and rewarding unless it serves to achieve both. No matter that the individual may be aware that corruption is unacceptable or illegal behaviour in their home country, they are likely to abide by the mores of the society they are now in because they desire approval. The fear of punishment, which together with strong societal disapproval in the west, is no longer a factor of any significance in this environment. If individuals who go from the west to work in Asia, have their values compromised because of the need for attachment this will do little to help the less corrupt nations to reduce corruption. There is clearly a need for those in positions of authority in the west to develop notions about what might be done to help the less corrupt nations to develop filters and practices that will enable their representatives to lead by example. Given the complexity of the dynamic processes occurring, responses that come under the generic heading of 'quick fixes' are unlikely to be helpful. Much good work is being done through the auspices of several influential international organisations. But, it is suggested that the most effective strategies and practices may be those aimed at ensuring that those from the west doing business in Asia do not succumb to the seduction of corruption. In the following paragraphs I shall set out what I feel are the basic requirements in the design and

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development of cutting edge strategies and practices aimed at reducing corruption. Many of the existing responses have been on the lines of familiarisation courses. These are a helpful starting point but it is suggested that they are nowhere near sufficient to deal with the sort of deeper understanding that the above problems require. Familiarisation courses will enable those who are about to work in Asian countries with the opportunity to learn something of the 'socio' or external aspects of their impending experience. At this level they can learn about the technological, economic, sociological and political factors that they will experience; the products and services that are generally available; and, the societal and organisational structures, strategies, and procedures that are in place; that together comprise the everyday life of the society or company they are visiting. In other words, those aspects of the processes of human behaviour that will be the 'external' realities of members of organisations who are about to visit Asian countries. However, if we want those who are about to visit Asian countries to know something about the 'psycho' level; about what is likely to go on in the minds of those people, we need to provide them with opportunities for learning about their subjective responses to culture shock. At this level we need to be aware that each individual is likely to react in a different way. It is very much a matter of the subjective experience of each individual and about what goes on in the minds of each individual. We know that this may include the ideas and ways of thinking about how they perceive the external realities and about how they shape their action towards them. And, that their actions will be influenced by their beliefs, values, hopes, anxieties, and the defence mechanisms they employ. In other words, we are now referring to the 'internal' realities of those who are about to visit Asian countries. I deliberately refer to 'opportunities for learning' because these are not matters that can be taught or trained. Rather, what is required is some form of experiential learning. As described above, simply providing individuals who are about to travel to Asian countries with information about their external realities is not sufficient. The fact is that the more important knowledge they

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require is a b o u t their internal realities; about how they are likely to react to the c h a n g e d cultural realities. For many years, G r o u p Relations Conferences have provided m e m b e r s with opportunities to learn, in an experiential way, about their own involvement in societal a n d organisational dynamics. More specifically, such events enable members to develop greater maturity in understanding and managing the b o u n d a r y between their i n n e r world a n d the realities of their external environment. (For a fuller description of G r o u p Relations Conferences see Miller (1989). For applications of the Group Relations approach see Gould, Stapley & Stein (2001)). T h e structure of a G r o u p Relations Conferences is such that it involves the removal of many of the conventional trappings. This, coupled with the interpretations of the staff; and, the intensity of the 'social island' c o m b i n e to call in question existing assumptions a n d to generate new insights. In this environment, three different types of learning are likely to occur. At the simplest level, m e m b e r s learn to identify a n d label some of the unfamiliar p h e n o m e n a that they encounter, b u t they d o so as observers. A second kind of learning goes beyond observation to insight, t h o u g h it is also partly conceptual: the experience adds to the ways in which the individual classifies the world a n d relates to it — particularly involvement in unconscious processes. Members often speak of Conference learning as giving t h e m a n o t h e r perspective o n h u m a n behaviour, including their own, a n d that is often what they m e a n . They may however be referring to a third type of learning, which implies n o t an additional perspective b u t a different perspective. This third level is referred to by Bateson (1973) who describes this third level as 'it entails a capacity to d o u b t the validity of p e r c e p t i o n s which seem u n q u e s t i o n a b l y t r u e ' . H e goes o n to describe how this is something different from merely replacing o n e apperceptive habit by another. It is also something different from b e i n g knowledgeable a b o u t one's own character. T h e experience of this t h i r d level of l e a r n i n g is the e x p e r i e n c e of b e c o m i n g responsible for one's behaviour. It is the realisation of unconscious behaviour such as d e p e n d e n c e as something o n e is, a n d is doing. Second level learning is the m i n i m u m level of learning which is

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desirable for individuals travelling to new cultures. T h e G r o u p Relations a p p r o a c h provides opportunities for m e m b e r s to learn that 'socio' processes will be affected by a n d c a n n o t be isolated from 'psycho' processes. It is this difference that will provide the required cutting edge development.

Concluding Remarks Viewing the corrupt act as a relationship between two people or two groups of people is exceedingly helpful. Relationship is n o t internal to the single person or individual group; and, we c a n n o t be corrupted unless there is someone to be corrupted by. Corruption has its roots in what h a p p e n s b e t w e e n p e r s o n s , n o t solely in s o m e t h i n g - o r - o t h e r inside a p e r s o n . We are t h e r e f o r e able to influence corruption b o t h directly a n d indirectly. By taking action to change the Asian culture to o n e where c o r r u p t behaviour is internalised as unacceptable, we can directly influence the corrupter. In addition, those in the west can develop strategies a n d practices to ensure that those from the west who are likely to be seduced into corruption are sufficiently aware of a n d able to control a n d m a n a g e their emotions, so that they will n o t act in corrupt ways. If that were the case, the simple truth is that there c a n n o t be a corrupt act. T h u s , while acknowledging the difficulties associated with bringing about societal a n d organisational culture change in Asia, western strategies a n d practices can indirectly b u t effectively help to control corruption in Asia. Consequently, the positive activities of G o v e r n m e n t leaders, top m a n a g e m e n t staff, a n d academic scholars in the west, in p r e p a r i n g those who are travelling to Asia to d o business, are vitally important. T h e results will n o t only be highly influential in respect of their own organisational activities b u t also in respect of the extent of corruption in Asia. However, to achieve their aim it c a n n o t be stressed strongly e n o u g h that these positive activities m u s t provide opportunities for learning at b o t h the 'socio' a n d 'psycho' levels. Without the latter, m e m b e r s of organisations will n o t be sufficiently p r e p a r e d . To achieve this end, it also requires that those employed

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to provide the opportunities for learning n e e d to be consultants working in a systems psychodynamic m a n n e r who have the necessary skills a n d awareness to create a n d facilitate appropriate learning opportunities.

References Bateson G (1979) Mind and Nature. New York, Bantam. Bateson G (1973) Steps to an Ecology of the Mind. St Albans, Herts, Paladin Press. Gould LJ, Stapley LF & Stein M (2001) The Systems Psychodynamics of Organisations. London, Karnac. Kernberg O (1966) Structural derivatives of object relationships. International Journal of Psycho-analysis 47: 236-53. Khan RL (1976) Individual and Corporation: The Problem of Responsibility. In: Miller EJ (ed.), Task and Organisation. London, John Wiley: 69-83. Marris P (1974) Loss and Change. London, Routiedge & Kegan Paul. Miller EJ (1989) The 'Leicester' Model: Experiential Study of Group and Organisational Processes. The Tavistock Institute Occasional Paper #10, London, Tavistock Institute. Stapley LF (1996) The Personality of the Organisation: A Psycho-dynamic Explanation of Culture and Change. London, Free Association Books. Stapley LF (2001) Beyond culture shock: Developing cross-cultural awareness. In: Kidd JB, Li X & Richter FJ (eds.), Maximising Human Intelligence Deployment in Asian Business. Basingstoke, Hants: Palgrave.

Fighting

CORRUPTION in A s i a pp

• ' • • * : . . . -

Fundamental changes within economies are needed to create arm's-length relations between governments, corporations, and banks. We are taking risks when investing in the future, and risk-taking demands openness and truthfulness from the agents we employ. If investors and accountants can concur on the degree of disclosure that is morally right we may come to some global agreement on what constitutes corruption — but to do this we have to bring together those who advocate profit-making with those who see this as usury; and we have to care for the future in novel ways — unknown in the past - so as to allow firms to be locally inefficient (apparently) while preserving the environment. This book looks widely at the prevailing situation in Asia and considers how little some governments are doing to guide their institutions towards probity and transparency. While fundamental changes are needed around the globe, it is in the developing nations that there is scope for radical change in the near future, as their institutions are re-created to meet the modern world. Once developed and functioning their managers will have the opportunity to facilitate and re-direct the institutions in the developed world, which happen to be more conservative than their own.

ISBN 981-238-242-9

World Scientific www. worldscientific. com 5169 he