August 24, 2016 12:00 pm JST

Anti-corruption crackdown sweeps through emerging markets

MASAFUMI UEMATSU, Nikkei staff writer

Supporters of the Indonesian Corruption Eradication Commission (KPK) protest the arrest of the commission's deputy head in January 2015.

TOKYO -- A wave of anti-corruption measures is sweeping through various parts of the world, with emerging market countries in Asia and South America tightening laws and regulations on graft and bribery.

These anti-graft measures come at a time when opaque financial transfers face increasing international scrutiny.

Companies operating in several countries now face an increasing risk of coming under investigation, even in cases involving minor amounts. Experts warn that many need to undertake further misconduct-prevention measures involving business partners and subsidiaries, as authorities around the world step up cross-border cooperation.

Yoshihiro Kai, a former prosecutor with extensive knowledge of criminal law in a number of countries, has received a growing number of inquiries from trading firms, manufacturers and other companies with overseas operations in the past few years.

Many inquiries are related to doing business in emerging market countries. One inquirer, for example, asked Kai if there were any problems associated with offering to pay when dining with government officials in country where they operate.

The increase in the number of inquiries, according to Kai, is down to many countries "rapidly toughening laws and regulations aimed at preventing corruption."

Brazil made a number of efforts to stamp out corruption as it prepared to host the World Cup in 2014 and the Olympics in Rio de Janeiro this year, some more successful than others.

A new anti-corruption law took effect in the country in January 2014. Under the new law, companies are all but unconditionally held legally responsible if their employees are found to have been involved in any form of graft.

While bribing public servants has always been illegal, companies embroiled in graft cases now face fines of up to 20% of their annual revenues and could even be ordered to disband in serious cases.

One after another, Asian countries are following suit.

Since 2013, China has implemented a sweeping anti-corruption campaign under President Xi Jinping. Chinese authorities investigated 4,490 corruption cases involving more than 1 million yuan (US$150,000) each in 2015, up 22% from 2014.

China also revised its criminal law in 2015 to impose a ban on bribe payments to relatives of public servants.

South Korea plans to bring in new anti-corruption legislation in September, when private teachers, journalists and public servants will be deemed to be in public office and face punishment if they are treated to meals worth any more than 30,000 won (US$26.8).

In Indonesia, Komisi Pemberantasan Korupsi, the government's corruption eradication commission, has intensified its clampdown every year since its establishment in 2003.

In the past, many cross-border bribery cases involving large companies only emerged after being investigated by the U.S. Justice Department under the U.S. Foreign Corrupt Practices Act.

"The U.S. view that cutting off the opaque flow of funds involving companies and governments helps fight terrorism has prevailed internationally," said Kai. "Emerging market countries have become more aggressive about cracking down on corruption."

The Organization for Economic Cooperation and Development Anti-Bribery Convention came into force in 1999. The treaty currently has 41 signatories, including many developing countries such as Brazil, Argentina and South Africa.

The OECD recommends legislative changes and other measures to countries that are not making sufficient progress in clamping down on corruption.

Many countries' investigative authorities are also increasing the level of international cooperation, resulting in a rise in the number of cases on which U.S. authorities work jointly with their counterparts in developing countries.

For example, the Justice Department and the KPK worked together in a graft case involving a power plant project in Indonesia in 2014.

While the KPK arrested an Indonesian lawmaker, the U.S. Justice Department fined major Japanese trading house Marubeni US$88 million as a result of the case.

Meanwhile, Japan lags behind many other countries in terms of cracking down on the bribery of foreign government officials.

Japan revised the Unfair Competition Prevention Act in 1998 to criminalize the practice, but only four cases have so far resulted in prosecution.

The OECD has repeatedly expressed grave concerns about the slow pace of progress in Japan and urged Tokyo to make more effort to toughen relevant laws and regulations.

 

Marubeni Corp.

Japan

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