That other virus—corruption

With more than 100 countries now affected by the novel coronavirus, the World Health Organization (WHO) has declared the outbreak a pandemic and called on governments around the world to take “urgent and aggressive action.” In the Philippines, a state of “public health emergency” has been declared, and “enhanced community quarantine” imposed on the entire Luzon island.

But there is another virus making governments and societies sick. It’s corruption—a stubborn malady that threatens the life and integrity of our institutions.

Just like COVID-19, global corruption is also spreading unchecked. There has been no definitive cure to eradicating corruption and fraud. Corruption, bribery, theft and tax evasion, and other illicit financial activities cost developing countries $1.26 trillion per year, according to Transparency International. Locally, an official of the Office of the Ombudsman estimated that the Philippine government is losing P700 billion a year because of corruption. The PricewaterhouseCoopers (PWC) Global Economic Crime and Fraud Survey, meanwhile, estimated that a staggering $42 billion worth of funds have been lost as a result of economic crime and fraud over the past two years, based on interviews with 5,000 businessmen-respondents across 99 countries.

In his fourth State of the Nation Address, President Duterte had expressed extreme frustration over the problem of pervasive corruption in government, despite what he said was his administration’s “strong” campaign against it in the past three years. Not much headway has apparently happened, with the PWC study only validating the extent of corruption in the Philippines as a major “disruptive economic threat” that affects companies operating in the country. According to the study, in 2020, 21 percent of respondents said they were asked to pay a bribe, while 14 percent of respondents said they lost an opportunity to a competitor who paid bribes.

The study also reinforces the results of the 2019 Corruption Perceptions Index (CPI), where the Philippines recorded a score of 34 points, the lowest in five years, on a scale where zero is “highly corrupt” and 100 is “very clean.” The international average was 43 points, while the regional average for Asia Pacific was 45 points.

The study noted that majority of the fraud incidents led to an average loss of up to $100,000 or P5 million per business in the past 24 months. Thirty-one percent of these incidents cost losses of between $50,000 and $100,000 (P2.5 million or P5 million).

A recent Senate blue ribbon committee investigation revealed that the Anti-Money Laundering Council had flagged P14 billion in “suspicious transactions” linked to Philippine offshore gaming operators or Pogos in the last two years. More than $633 million are now suspected to be part of a syndicate-run foreign currency smuggling operation. The Department of Finance also estimated that of over 230 Pogos in the country, only 60 are licensed by the Philippine Amusement and Gaming Corp., and only 10 are paying taxes, per the Bureau of Internal Revenue.

This illustrates how corruption wields cold cash to abet operations that enrich its benefactors.

While these illegal activities go on, the administration has targeted three of the country’s most successful and highly regulated listed private enterprises (Manila, Water, Maynilad, and ABS-CBN) with allegations of having violated their contracts or franchise regulations, accompanied by threats of takeover or closure. Many observers see this as weaponizing the law and using populist rhetoric for still unclear motives, but one that will only cause long-term repercussions because of the country’s now unstable regulatory environment.

The problem of corruption is complex and multidimensional, requiring the collaboration of both the public and private sectors. Long-term institutional reforms, such as amending the Bank Secrecy Act and strengthening the country’s antimoney laundering laws, are critical first steps. The government and the private sector must work together to promote greater transparency and accountability in governance, and build institutional integrity. This is a fight that is as crucial for the nation’s future as the battle against COVID-19.

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Dindo Manhit is founder and managing director of the Stratbase Group.