Inclusive corruption

Inclusive growth is the mantra of the moment, echoed by a chorus of development experts and social activists and even by some politicians. We remain some distance away from this cherished goal. But if Makati whistle-blowers are to be believed, the country’s richest and most developed city is apparently achieving inclusive corruption.

The Binay family allegedly appropriated 13 percent of the revenue from city contracts awarded through a rigged bidding system. This kind of systematic plunder of Makati’s coffers, carried out for more than 25 years, can be directed from the top but cannot be implemented without the collaboration of officials at lower levels. The tongpats had to trickle down.

On top of the Binays’ 13-percent share, an additional 12 percent allegedly went to Makati City officials: 6 percent to the vice mayor, 16 councilors, two sector representatives, the council secretary and the commissioner; 3.5 percent to the engineering department; 1.5 percent to the bids and awards committee and the technical working group; and 1 percent to the budget, accounting and treasury heads.

That took care of the city officials, some of whom have already admitted to their take. Auditors of the Commission on Audit deployed in Makati to prevent corruption also had to be managed. Hence, 2 percent was reportedly reserved for the resident auditor and 1 percent for the technical audit specialist.

Former vice mayor Ernesto Mercado, the key insider witness, noted that one resident auditor, Celia Cagaanan, declined her share for signing off on the Makati City Hall Building II. Her restraint was salutary and commendable, but the revelations about the MCHBII cast doubts on her decision to sign the clearance. To resist a conspiracy involving the city officialdom requires not just honesty but also heroism.

The hearings conducted by the Senate blue ribbon subcommittee have also revealed that the crime did not involve only government officials. The overprice also required the participation of private business corporations in a perverse form of public-private partnership. The scam needed the assistance of a Hilmarc Corp., the construction company that built the MCHBII and nine other Makati buildings in the last 10 years.

The link between the MCHBII and “Hacienda Binay” was the allegation that Hilmarc needed to collect from the Makati building the bill for its work on “Hacienda Binay” and other advances it had made to the Binay family. To justify the billings, Hilmarc reportedly charged for work that was not necessary or should not go on the government’s account. Hilmarc is also suspected of complicity in the rigged bidding process.

A small item discussed in the Oct. 22 hearing illustrated the key role of contractors. Businessman Antonio Tiu denied that his firm had ever participated in any bid to supply Makati with hospital beds. The firm did sell Taiwanese-made hospital beds to Apollo Medical Equipment, which in turn sold the beds to Makati as US imports. How much the Tiu firm sold the beds to Apollo was not disclosed. But Makati paid P36 million when import documents recorded the cost at under P2.5 million.

The contract between Apollo and Makati needs investigation. It is not clear that Tiu committed any crime in his transaction with Apollo—unless he also benefited from the second transaction. Perhaps, like his professed disinterest in who actually owned the “Hacienda Binay” he bought, he was similarly unconcerned about Apollo’s business dealings with Makati.

In the modern world, however, collusion between contractors and government officials is not sufficient for systemic, large-scale graft to succeed. Antigraft experts in the West have documented the emergence of a corruption industry that includes the participation of realtors, lawyers, accountants, investment bankers and tax experts. Professionals in these fields contribute their expertise to conceal assets, evade taxes, and avoid their appearance in the statements of assets, liabilities and net worth required of government officials.

From the parade of witnesses summoned before the Senate blue ribbon subcommittee, we appear to be catching up with the West on the best practices for managing corrupt transactions. The public is getting an education on the construction of corporate shells and the appointment of dummies in the board of directors so that the owners can retain control over assets while keeping their identity hidden from the public and the tax collectors.

It takes an entire village to raise a child, we are told. It turns out that it also takes virtually a whole village to prosper a crook. With the large cast of characters involved in running business operations, while also cooking the books, it is not surprising that someone will accidentally or deliberately let pieces of the truth slip out. What is surprising is how the scam has remained a secret for so long.

If Vice President Jejomar Binay is innocent of the charges raised against him, he must still explain how corruption, allegedly abetted by practically the entire city bureaucracy, has flourished in Makati over the 28 years he and his family have controlled the city.

Edilberto C. de Jesus ([email protected]) is professor emeritus at the Asian Institute of Management.