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Corruption in Thailand has the junta feeling defensive

Prime minster 'ready for scrutiny' as details of state company scandals emerge

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Thai Prime Minister Prayuth Chan-ocha has offered astrological predictions to back up his personal assurance that his government is clean.   © Reuters

BANGKOK It was an embarrassing start to the year for Thailand. The country's standing in a global corruption ranking has tumbled 25 places in the space of a year, while U.S. and U.K. authorities recently unveiled they had investigated a string of bribery cases involving high-profile Thai state companies.

All of this is particularly unwelcome news for Thai Prime Minister Prayuth Chan-ocha. The military coup he led in May 2014 used fighting corruption as justification for toppling the elected government.

Speaking at a press conference, Prayuth appeared desperate to defend his regime. He said the scandals recently unveiled, including a multinational case involving British engineering giant Rolls-Royce, all happened before the current government took power. He even provided some astrological predictions to calm reporters: "Astrologers said that this is the year of exposing the truth. In any case, I am always ready for scrutiny."

BIG MONEY U.K. and U.S. authorities allege that flag carrier Thai Airways International and state-owned energy giant PTT accepted bribes from Rolls-Royce in return for inking procurement deals with the British company for aircraft engines and gas plant equipment. Separately, the U.S. Department of Justice has said that state-owned electricity and telecom companies received bribes from Kentucky-based cable and wire company General Cable Corp.

In the Rolls-Royce case, the company paid a total of $36 million to intermediaries in Thailand, most of which was used to bribe individuals at Thai Airways and in the Thai government, an indictment by the U.K.'s Serious Fraud Office revealed. According to local media, Rolls-Royce's engines have been used for nearly all the newer generation of jetliners since the early 2000s.

An additional $11 million was reportedly paid to intermediaries to pass on to individuals at PTT and subsidiary PTT Exploration and Production, according to the U.S. Department of Justice.

Although the allegations predate the current military government -- 1991-2005 for cases regarding Thai Airways and 2003-2013 for PTT -- some of the cases fall during previous periods of military rule, and some current cabinet members served in governments that approved the purchase plans of state-owned companies linked to the scandals. Moreover, Thai Airways has close links with the Thai Air Force, and air chief marshals were serving as chairmen during some of the periods in question.

Former and retired military and government officials are appearing daily on TV to deny their involvement in the scandals. The junta, meanwhile, is urging government agencies and the state-owned companies to launch their own probes into the alleged misdeeds.

Over the past three years, the military government has been tightening measures against corruption, with the prime minister using his absolute powers to take disciplinary action against police officers and other state officials. In 2015, the Anti-Corruption Act was revised to impose harsher penalties. Punishment for graft, previously limited to state officials, was extended to cover foreigners and those in the private sector who offer bribes. The maximum penalty is death, which has drawn international criticism, though it has not yet been applied.

The private sector has started its own initiative, involving institutions such as the Thai Chamber of Commerce and the Thai Institute of Directors Association, to certify companies with good corporate governance. Some 200 companies have obtained the certification. "Action needs to be taken not only by the government sector but also by the private sector ... because the problem right now is a little bit systematic," the institute's chief executive, Bandid Nijathaworn, said.

DOWN THE LIST The Corruption Perceptions Index 2016, published by Transparency International, was further bad news for the government. Thailand dropped from 76th place in the previous edition to 101st in the most recent ranking of 176 countries. The report did, however, praise efforts within the kingdom to tackle corruption.

Thailand's poor score of 35 out of 100 -- down from 38 in 2015 -- was due largely to a lack of transparency under the junta rule. "There is a clear absence of independent oversight and rigorous debate," the report said, citing that free debate on the constitution draft that was put up for a national referendum last August was "impossible." "The military junta also prohibited monitoring of the referendum," it added.

"Corruption in Thailand is very complex," said Kriengsak Chareonwongsak, an economist who heads the Institute of Future Studies for Development, a research institute in Thailand. He said Thailand's patronage culture, in which people feel obliged to pay back favors, plus the hierarchical nature of society, notably seen in the public sector and military, are two of the root causes of bribery and corruption.

"[We need] not just penalties but a transparent system such as for selecting who runs state companies in order to close the door to corruption," he said, though he added that "there are loopholes in any anti-corruption system, and no country is perfect."

ASIAWIDE ISSUE Thailand, of course, does not have a monopoly on corruption. The Rolls-Royce scandal has spread to other countries, including India, Russia, Nigeria, China and Malaysia.

In Indonesia, Emirsyah Satar, a former president and CEO of flag carrier Garuda Indonesia, has been named as a suspect in the case. Satar, who led Garuda's restructuring from 2005 to 2014, allegedly received more than $3 million in kickbacks for granting engine procurement contracts for Airbus aircraft to Rolls-Royce.

A document from the Serious Fraud Office also cited an older bribery case dating to 1989-1998 -- during late dictator Suharto's New Order era -- for procurement of Trent 700 engines for six Airbus A330 aircraft. An agent of the office of the president of Indonesia, acting as an intermediary, received $2.25 million and a Rolls-Royce Silver Spirit car in return for the contract, according to the document.

The Corruption Perceptions Index highlighted issues across Asia. Cambodia came in at 156th globally, the lowest among the 10-member Association of Southeast Asian Nations. Singapore performed the best, at 7th place. China and India remained near the middle of the index.

Wilson Ang, a partner at Norton Rose Fulbright (Asia), said that the failure of Asian governments to deal effectively with corruption could "lead societies to clamor for change, ultimately resulting in turmoil and instability." This, he said, has the potential to deter multinationals from investing. "Where levels of corruption are intolerable, businesses are forced to move elsewhere -- leading to further unemployment and economic stagnation."

Nikkei staff writers Erwida Maulia in Jakarta and Justina Lee in Singapore contributed to this article.

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