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.

6

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:

8

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,

10

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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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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China Today

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%

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

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