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Analysis

The Philippines’ high levels of corruption significantly limit the effectiveness of businesses. Foreign corporations are subject to extortion and manipulation by public authorities due to widespread bribery within the public sector and ambiguous and confusing rules. In the courts, favoritism and undue influence are common, resulting in time-consuming and unfair conflict resolution, as well as an unstable business environment. The customs administration is riddled with corruption, and corporations are often defrauded while processing import and export paperwork. Bribery, extortion, abuse of office, and conflicts of interest are all illegal under the Anti-Graft and Corrupt Practices Act. It is forbidden to present gifts, with the exception of gifts of negligible value given in accordance with local customs. Anti-corruption laws do not address facilitation payments, and bribery in the private sector is not illegal. The legal framework for combating corruption is fragmented, and it is not successfully enforced by law enforcement agencies that are weak and uncooperative.

Judicial

Corruption risks are high in the judicial system. Bribes and irregular payments in return for favorable judicial decisions are common (GCR 2015-2016). The judiciary is formally independent, but the rich and powerful have frequently influenced proceedings in civil and criminal cases (BTI 2016). Procedural fairness and transparency are severely undermined by nepotism, favoritism, and impunity (HRR 2016). Companies do not have sufficient faith in the independence of the judiciary and they rate the efficiency of the legal framework in settling disputes and challenging regulations as poor (GCR 2017-2018). Investment disputes can take several years to resolve due to a lack of resources, understaffing, and corruption in the court system (ICS 2017). Low salaries for judicial officials are said to perpetuate the problem of bribery (BTI 2016). The judiciary is underfunded by the state and often depends on local sponsors for resources and salaries, resulting in non-transparent and biased court decisions (FitW 2017). Foreign investors have noted that the inefficiency and uncertainty in the judicial system are disincentives for investment; investors regularly decline to file disputes due to the perception of corruption among personnel and the complex and slow litigation processes (ICS 2017). Enforcing a contract takes much longer than the regional average, but the costs involved are significantly lower  (DB 2017).

In one recent case, a businessman filed an administrative complaint in the country’s Supreme Court against Makati City judge for allegedly asking for a PHP 15 million bribe in exchange for a favorable ruling in an insurance claim (Inquirer, Aug. 2016). At the time of review, no further updates on the case were available.

Police

There is a high-risk of corruption when dealing with the police. The national police force is widely regarded as one of the most corrupt institutions in the country (ABS CBN, Jan. 2017). Reports of the police and military engaging in corruption, extortion, and being involved in local rackets are widespread (FitW 2017). Companies report that they cannot rely on the police services (GCR 2017-2018). More than half of firms pay for private security (ES 2015). Businesses rate the National Police’s commitment to fighting corruption as ‘poor’ (SWS 2016). President Duterte has accused several police generals of being involved in the trafficking of illegal drugs (ABS CBN, Jan. 2017).

In one corruption case, Police Commissioner Mr. Sombero, is under investigation for allegedly facilitating a PHP 50 million bribe from gambling tycoon Jack Lam, who tried to bribe immigration authorities in order to release approximately 1,300 Chinese nationals who were working in his resorts illegally (CNN Philippines, Feb. 2017).

Public Services

Companies contend with a high corruption risk when dealing with the public services. Approximately half of business executives reported being asked for a bribe by someone in the government in 2016 (SWS 2016). Nearly three out of five business reported expecting to give gifts in order ‘to get things done’, but only one in ten reported expecting to give gifts to get an operating license (ES 2015). Irregular payments and bribes in the public services sector sometimes occur (GCR 2015-2016). Philippine officials involved in processing documents related to civil and property registration and building permits are more likely to solicit bribes compared to officials dealing with other types of services (Ombudsman’s Office Survey 2013). Inefficient government bureaucracy is ranked as the most problematic factor for doing business in the Philippines (GCR 2017-2018). Civil servants often do not have the resources or abilities to fulfill their tasks free from corruption and red tape (BTI 2016). Furthermore, civil servants are generally not recruited in a competitive manner; appointments are based on a practice of patronage (BTI 2016).

The total number of procedures required to set-up operations, including registering the company with local government and getting a construction permit, are significantly higher than regional averages (DB 2017). Getting electricity takes significantly less time than elsewhere in the region (DB 2017).

Land Administration

Corruption risks in the land administration are high. Two out of five companies report expecting to give gifts when obtaining a construction permit (ES 2015). Property rights are formally recognized and protected in the Philippines, but in practice, the law is not always upheld (ICS 2017). Businesses have insufficient confidence in the protection of property rights (GCR 2017-2018). Corruption and arbitrariness in the application of the law are common (BTI 2016; ICS 2017). Multiple agencies are responsible for land administration, which has led to overlapping procedures for land valuation and title registration; this has made the process costly (ICS 2017).

The court system is slow to resolve land disputes (ICS 2017). Land records are not properly managed due to a lack of trained personnel and funds (ICS 2017). Foreigners are not allowed to directly own land, but they may lease land for up to 50 years with a possible one-time extension of 25 years (ICS 2017). Expropriation is possible under Philippine law; the law calls for fair market value compensation, but coming to a mutually acceptable price can be a lengthy process in the court system (ICS 2017). Registering property takes nine procedures in the Philippines, which is double the regional average (DB 2017). However, the total time required is less than half of the regional average (DB 2017).

Tax Administration

There is a high risk of corruption when dealing with the tax administration. Around one in seven companies indicate they expect to give gifts in meetings with tax officials (ES 2015). Tax regulations are among the most problematic factors for conducting business in the Philippines (GCR 2017-2018). Companies indicate that they perceive that only a fifth of businesses in their line of business pay their taxes honestly (SWS 2016). Officials at the Bureau of Internal Revenue (BIR) are believed to be prone to corruption and known for embezzlement and extortion (Manila Bulletin, Feb. 2014). A typical example of this can be found in a recent case in the city of Bacolod; an officer with the BIR was caught extorting PHP 125,000 from a local company (Philippine News, Mar. 2017). Businesses rate the BIR’s commitment to fighting corruption as poor (SWS 2016). On a more positive note, there are signs that the BIR is pursuing more cases of tax evasion (BTI 2016).

Companies make twenty-eight tax payments a year, which is higher than the regional average (DB 2017).

Customs Administration

There is a high risk of encountering corruption when dealing with the customs administration. Companies indicate that irregular bribes and payments in import and export procedures are very common (GETR 2016). About a quarter of companies indicate they expect to give gifts when obtaining an import license (ES 2015). A business survey indicates that the Bureau of Customs (BOC) was the only agency receiving a rating of ‘very bad’ when it came to its commitment to fighting corruption (SWS 2016). Companies cite burdensome import procedures and corruption at the border as being among the most problematic factors for importing (GETR 2016). The efficiency and time predictability of procedures are rated as poor (GETR 2016). Border compliance costs in the Philippines are significantly higher than the regional average, whereas the time required is in line with the regional average (DB 2017).

The Bureau of Customs (BOC) has indicated that smuggling of goods, among which cigarettes, vehicles, and oil, into the Philippines has led to the evasion of taxes worth at least USD 1 billion yearly (Philstar, Feb. 2017). Consistent fraud in the form of under-invoicing when importing and exporting costs the state USD billions in revenues each year (Wall Street Journal, Mar. 2014). In 2016, the BOC alleged one of its employees accepted as much as USD 4 million in bribes monthly (Rappler, Aug. 2016).

Public Procurement

There is a very high risk of corruption in the public procurement sector, which is subject to rampant corruption, irregularities, and inconsistent implementation of legislation. Likewise, more than a fifth of businesses report they expect to give gifts in order to win a government contract (ES 2015). Two in five companies indicate that most companies in their sector give bribes in order to win contracts (SWS 2016). Diversion of public funds, as well as favoritism in the decisions of public officials, is very common (GCR 2017-2018). The public sector is obliged to procure goods and services from companies with at least 60% Philippine ownership (ICS 2017). Local-level public procurement lacks transparency, fostering a culture of corruption through the misuse of the pork barrel system; which are funds for discretionary use by representatives for projects in their respective districts (BTI 2016). Philippine law allocates responsibility for monitoring, investigating and sanctioning irregularities in public procurement to a number of different state institutions, leaving potential misconduct, inefficiency and impunity unchecked (Sunlight Foundation, Oct. 2013).

Natural Resources

Companies operating in the natural resources sector face a high risk of corruption. The Philippines has shown marked improvements in its natural resource governance in the past few years; the country has a good enabling environment and its regulatory quality and control of corruption are judged as adequate (NRGI 2017). However, poor value realization and revenue management have caused the country’s overall resource governance to be judged as ‘weak’ (NRGI 2017). The Philippines has been working to achieve compliance with the Extractive Industries Transparency Initiative (EITI) since joining in 2013 (EITI 2016). Some mining contracts are publicly disclosed via the EITI portal. While transparency in the sector has improved, poor regulation and overlapping policy responsibilities between local and central governments have meant that small-scale mining is still a contentious issue (EITI 2016).

Government corruption has allowed mining companies to evade government regulations, which has resulted in large-scale deforestation, flattened mountaintops and water pollution (New York Times, Apr. 2017). The government responded by cracking down on illegal mining operations; and as of 2017 Secretary of the Environment Gina Lopez shut down 28 of the country’s 41 mining companies for polluting the environment (New York Times, Apr. 2017). However, Lopez was removed from her job by Congress in May 2017 after mounting complaints from the pro-mining lobby (Mining.com, May 2017).

Legislation

Companies should note that the legal anti-corruption framework in the Philippines is complicated and poorly enforced; there is a lack of cooperation between law enforcement agencies, and officials are rarely prosecuted and convicted for corruption crimes (HRR 2016). The Anti-Graft and Corrupt Practices Act criminalizes active and passive bribery, embezzlement, extortion, abuse of office and conflict of interest in the public sector. Bribery of public officials and trading in influence are also criminalized in the Anti-Red Tape Act. The Act forbids office-holders from accepting any gifts or material benefits in exchange for any government permit or license. Under the Revised Penal Code, gifts are classified as indirect bribery. An exception is made for gifts of insignificant value given as a token of friendship in line with local customs. Facilitation payments are not addressed in the law. Private sector bribery is not criminalized (UNODC 2014). Under the Code, public officials are required to regularly file a statement of their assets and liabilities. In case of any discrepancy between the official’s asset declaration and the amount of property or financial assets actually possessed, the official is subject to immediate dismissal. Punishments for corrupt acts include imprisonment of up to ten years, a fine, removal from office, and/or confiscation of property. The Anti-Money Laundering Act criminalizes money laundering and organized crime. The Act Establishing a Code of Conduct and Ethical Standards for Public Officials and Employees formulates standards for the personal integrity and accountability of civil servants. The Government Procurement Reform Act requires competitive and transparent bidding. Philippine legislation does not contain any provisions on protecting whistleblowers who report on corruption. The Philippines has ratified the United Nations Convention against Corruption.

Civil Society

Companies should note that the legal anti-corruption framework in the Philippines is complicated and poorly enforced; there is a lack of cooperation between law enforcement agencies, and officials are rarely prosecuted and convicted for corruption crimes (HRR 2016). The Anti-Graft and Corrupt Practices Act criminalizes active and passive bribery, embezzlement, extortion, abuse of office and conflict of interest in the public sector. Bribery of public officials and trading in influence are also criminalized in the Anti-Red Tape Act. The Act forbids office-holders from accepting any gifts or material benefits in exchange for any government permit or license. Under the Revised Penal Code, gifts are classified as indirect bribery. An exception is made for gifts of insignificant value given as a token of friendship in line with local customs. Facilitation payments are not addressed in the law. Private sector bribery is not criminalized (UNODC 2014). Under the Code, public officials are required to regularly file a statement of their assets and liabilities. In case of any discrepancy between the official’s asset declaration and the amount of property or financial assets actually possessed, the official is subject to immediate dismissal. Punishments for corrupt acts include imprisonment of up to ten years, a fine, removal from office, and/or confiscation of property. The Anti-Money Laundering Act criminalizes money laundering and organized crime. The Act Establishing a Code of Conduct and Ethical Standards for Public Officials and Employees formulates standards for the personal integrity and accountability of civil servants. The Government Procurement Reform Act requires competitive and transparent bidding. Philippine legislation does not contain any provisions on protecting whistleblowers who report on corruption. The Philippines has ratified the United Nations Convention against Corruption.

Sources