1. What forms of business-related corruption are most common in the Philippines?
The Philippines is ranked 152nd out of 197 countries on the TRACE Matrix, which measures business bribery risk by country across four domains: business interactions with government; anti-bribery laws and enforcement; government and civil service transparency; and capacity for civil society oversight. With an overall risk score of 70, the Philippines represents a high level of risk, particularly in the domain of “business interactions with government” – indicating a high risk of intensive interaction with the government, high regulatory burden and a high expectation of bribes.
Foreign companies are most vulnerable to corruption when dealing with customs and tax authorities, securing local government permits/licenses, bidding for public sector contracts and availing themselves of government investment incentives.
Notably, a 2014–2015 survey of Philippine businessmen by the non-profit social research organization SWS revealed that customs officials, the police force, the House of Representatives and the Department of Public Works (infrastructure) were perceived to be the most corrupt government institutions. In that survey, 32 per cent of Filipino managers stated they had personal knowledge of a corrupt transaction with government in the previous three months, and 39 per cent of respondents said most companies in their business sector give bribes to win public-sector contracts.
2. How do these forms of corruption typically impact foreign businesses?
Given this environment, foreign companies might decide to resort to facilitation payments – which are prohibited under local law. These small bribes, also called “grease payments,” are made to government officials to encourage them to perform or expedite routine governmental tasks. Although such payments are not permitted in the Philippines, in practice, they are both difficult to define and impossible to control.
When it comes to public-sector contracts, companies may mistakenly believe that interacting with government through a local intermediary (e.g., brokers, advisors, lawyers and agents) relieves them of liability. In many cases, foreign companies working through an intermediary unwisely choose to remain deliberately ignorant of any practices used by such intermediaries to secure contracts.
3. Are there specific foreign business sectors that are most vulnerable to corruption?
Typically, higher-risk industries in the Philippines include construction and engineering, extractive industries and power generation, telecommunications, and transportation and logistics.
4. Are there proven best practices that foreign companies can apply to reduce their risks?
First, report any requests for bribes. Notably, the SWS survey reveals that only 13 per cent of those solicited for a bribe reported it.
Secondly, companies should come into the Philippines armed with a robust compliance program and the resolve to implement it. Compliance programs should include the following:
- Commitment from management and an articulated policy against corruption;
- Internal controls to detect and prevent bribery, including a whistleblowing system;
- Continuous training of employees and third parties, including training on the duty to report and escalate red flags and concerns;
- Risk-based due diligence on third parties and ongoing monitoring of their practices.
Finally, in relation to risk-based due diligence and monitoring of third parties, foreign companies should work only with reputable business partners. They should carefully vet their intermediaries, and require evidence of a compliance program and completion of anti-bribery training. Working with TRACE Certified companies can provide foreign companies with the assurance that the entity has completed a rigorous due diligence process based on international standards. Companies may also refer to TRACEpublic, the first global register of beneficial ownership information, which allows companies to share and search for beneficial ownership information at no cost. The database supports the efforts of companies seeking to conduct business ethically.
5. Some companies might choose to “play ball” to land a contract in the Philippines. What are the potential consequences?
Aside from the significant risk of prosecution, penalties and accompanying reputational damage, bribery is not even a guarantee that a contract will push through. In fact, large deals with the government have been later invalidated when it was revealed that the contract was secured through corruption. In addition, the company will be perceived as “open for business” in terms of bribes, which will set a precedent for any future contracts.
This Q&A article was originally produced for ExportWise.ca, Export Development Canada’s online magazine.