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Integrity Pact was first used on the Purple Line, part of Bangkok's overhead urban transit system. (Photo by Peter Janssen)

Thailand faces uphill battle on anti-corruption campaign

Recent scandals show that Thai military junta has much to do to tackle graft

PETER JANSSEN, Contributing writer | Thailand

BANGKOK -- Who says British and American companies are losing out in the Southeast Asian market? At least two major corruption scandals that broke in January seem to indicate that Anglo-American multinationals have been holding their own against their Asian rivals, at least in Thailand.

First, the U.K.'s Serious Fraud Office in mid-January revealed that British engine manufacturer Rolls Royce admitted to paying about $36 million in bribes to secure airplane engine sales to Thai Airways International in various deals between 1991 and 2005. Then came the allegation from the U.S. Department of Justice that the Kentucky-based General Cable, via Phelps Dodge International, had provided $1.5 million in "rebates" to a local distributor in Thailand in connection to sales of cables and wires to three Thai state enterprises -- the Metropolitan Electricity Authority, Provincial Electricity Authority and Telephone Organization of Thailand -- between 2011 and 2013.

If Thailand's military regime, which launched an anti-corruption campaign immediately after its May 14 2014 coup, pushes for prosecutions in these cases it could earn the generals some needed medals on their bribery battlefield.

"On things like the Rolls Royce scandal, if we start to see that influential people who were involved are taken to task and serious action is taken against them, that would be further reassurance that this government is trying to do more to stamp out corruption overall," said Darren Buckley, country head of Citibank Thailand. "But we will see."

Tarnished image

Prime Minister Prayuth Chan-ocha's regime has notched up a mixed performance on the corruption front. While there is a general perception among the Bangkok business community that corruption has decreased somewhat since the military came to power, compared with the widespread view of rampant corruption under the previous, elected government of former Prime Minister Yingluck Shinawatra, that perception is not shared by everyone.

In Transparency International's latest Corruption Perception Index for 2016, issued on Jan. 26, Thailand tumbled three points to 35, from 38 out of 100 in 2015 (the higher the score, the cleaner the country.) The Berlin-based corruption watchdog said the slide reinforced the "link between perceived corruption and political turmoil," adding: "Government repression, lack of independent oversight, and deterioration of rights eroded public confidence in the country."

Some might question the word "turmoil" used to describe the past two-and-a-half years of military rule, compared with the preceding decade of violent street protests and political divisions that tore Thai society apart and prompted two successive coups. Much of the past unrest was focused on the controversial role of former Prime Minister Thaksin Shinawatra, a billionaire telecommunications tycoon who came to power on a populist, nationalist platform in 2001. Thaksin-led elected governments -- 2001-2006 and 2007-2008 -- were dogged by perceived peaks in corruption, common to all elected governments in Thailand, reaching new heights under his younger sister Yingluck, who was prime minister from 2011 to 2014.

David Lyman, chairman of Tilleke & Gibbins law firm in Bangkok, claims that corruption in Thailand peaked under the previous government. (Photo by Peter Janssen)

"Under the Yingluck government, I heard corruption had reached 40 to 45% of the project value at one point," said David Lyman, chairman of Tilleke & Gibbins, a law firm that has operated in the kingdom for decades. It was no accident that Prayuth came in on a strong anti-corruption platform following his coup, an act that inevitably raised questions of legitimacy.

"I think they were trying to clean up the mess, because it went too far under the Yingluck government," said Lyman. "One of the first things this government did was to double the budget of the National Anti-Corruption Commission virtually on day one."

Another thing the Prayuth government did immediately after the coup was to launch an effort to reform Thailand's corruption-ridden, highly inefficient state enterprise system, placing all 55 major state-owned companies under a so-called "superboard" chaired by Prayuth. The superboard is now pushing legislation -- approved by the cabinet in August -- through the rubber stamp parliament.

The draft law was designed to lessen the influence of ministries over state enterprises. For instance, although Thai Airways is majority-owned by the finance ministry, it has traditionally fallen under the influence of the transport ministry, regarded as one of the more corruption prone areas of Thai bureaucracy. In the past, any new transport minister would appoint a new board of directors at the airline who would do his bidding.

Tip of the iceberg

The Rolls Royce scandal is hardly surprising, and probably the tip of the iceberg, according to many analysts. The Thai Airways procurement system is geared to encourage malpractice, according to former Finance Minister Korn Chatikavanij (2008-2011). "[Thai Airways] is one of the only airlines in the world that did, and still does, a substantial amount of procurement through agents, rather than directly," said Korn, a senior member of the Democrat Party. 

If the Thai National Assembly approves the new law governing state-owned enterprises soon, Thai Airways and 11 other incorporated SOEs will be placed under a holding company which will be empowered to appoint the boards of directors and monitor management practices. The government's view is that this will close off the possibilities for more Rolls Royce-type cases.

The government's anti-corruption efforts have been assisted, if not initiated, by members of the Thai private sector, who have become more vocal and active in denouncing corrupt practices over the past decade. The Anti-Corruption Organization of Thailand (ACT), for instance, has helped the regime introduce the "Integrity Pact" concept in many of the costly infrastructure projects undertaken by the regime in a bid to boost Thailand's flagging economy.

The Integrity Pact, devised in Europe, entails assigning private sector experts to monitor large public sector projects to ensure a measure of transparency. "The idea is that the independent observers will follow the project from start to finish," said ACT Chairman Pramon Sutivong. "We are hoping this would deter attempts to fix the deal or create collusion." ACT has recruited about 150 private sector experts to its roster, most of them retired engineers, who have been assigned to Integrity Pacts attached to 28 of the megaprojects currently underway in Thailand.

The Integrity Pact has already been used on major infrastructure projects such as the Purple Line overhead train in Bangkok and the Suvarnabhumi Airport expansion Phase 2 -- a plan to upgrade Bangkok's main international airport. "I think this is progress," said Deunden Nikomborirak, research director at Thailand Development Research Institute Foundation (TDRI), a think tank. "It is the first time in [Thai] history that the government has allowed the private sector to observe the procurement procedures starting from the drafting of the [terms of reference] until the monitoring of the bids."

TDRI is also assisting the implementation of the first Construction Sector Transparency Initiative (CoST) at Suvarnabhumi Airport Phase 2, which involves enabling multiple stakeholders to set standards on the information that must be disclosed about the terms of reference, the bidding process, the number of bidders, the criteria for choosing the bids and the winning bids. Suvarnabhumi Airport Phase 1, opened in 2004, was at the heart of several corruption scandals, including the purchase of expensive X-ray machines from a company that did not exist prior to the bid offer, and and probably the world's most expensive suitcase trolleys -- 10,000 of them cost 500 million baht ($14.2 million.)

New legislation

Legislative examples of the government's efforts to curb the corruption scourge include the passing and implementation of the Licensing Facilitation Act in July 2015, aimed at reducing officials' discretionary authority in passing out licenses. A new Procurement Act, meanwhile, was recently approved by cabinet and awaits a vote by the National Assembly. The law would set standard procedure for all future government procurement, with certain exemptions, such as military purchases.

"The reason they [the military] gave was because military purchases are more specialized," Pramon said. "It is one of those things a lot of people question."

There is a certain irony in seeing Thailand's anti-corruption campaign being waged by the military, which along with the police force has been generally criticized as among Thailand's most corrupt national institutions. Not long after coming to power, the military sparked a public outcry over alleged graft in the construction of a public park in 2015 where giant statues of seven Thai monarchs were erected. Senior generals were said to have received kickbacks but an army investigation - perhaps not surprisingly -- found no irregularities. There have been no moves to attach Integrity Pacts to recent military purchases under Prayuth's purview.

That said, the military is probably best positioned to battle corruption, if not within their own ranks then at least among elected politicians. "Elected governments usually have the corruption issues from the low level to the high level, but for the current government, at the high level they come from the military so they know what they should do," said Stanley Kang, chairman of the Joint Foreign Chamber of Commerce. "These new regulations and models are all good, but the problem is implementation. But in this region, at least the Thai government is talking about corruption. Other places they don't even talk about it."

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