Friday, September 22, 2006

GLOBAL CORRUPTION REPORT 2006 - focus on MALAYSIA

GLOBAL CORRUPTION REPORT 2006
(Extracts on MALAYSIA)

MALAYSIA
Conventions:

UN Convention against Corruption (signed December 2003; not yet ratified)
UN Convention against Transnational Organized Crime (ratified September 2004)
ADB-OECD Action Plan for Asia-Pacific (endorsed November 2001)

Legal and institutional changes
• The Central Bank introduced two public complaints and redress forums in 2005. The Financial Mediation Bureau (FMB), launched in January, is an integrated dispute resolution centre for financial institutions. The FMB’s predecessors, the Banking Mediation Bureau and the Insurance Mediation Bureau, handled a total of 1,515 cases in 2004. The FMB provides an avenue of redress for a wider spectrum of the public since it covers the consumer areas of Islamic insurance, development finance institutions, as well as nonblank issuers of credit and charge cards. In February, the Central Bank set up a website, LINK, to facilitate a rapid response to the public, as well as small and medium enterprises, on matters related to the financial sector. LINK also has the potential to encourage internal and external whistleblowers to disclose corruption in the financial sector.

• In December 2004, the Treasury issued new guidelines for public procurement on infrastructure maintenance projects that outline the selection process for contractors, the use of open tenders and the participation of a broader group of public officials to ensure transparency. Though the guidelines cover one area of public procurement only, they apply to all departments of government (see below).

• The Anti-Corruption Academy, first announced in December 2003, is expected to become operational in September 2005. Its main role is to train officials of the domestic Anti-Corruption Agency, but it will function as a regional centre for anti-corruption capacity building, promoting best practice in investigation, monitoring and enforcement, as well as forensic accounting and engineering (see below).


Malaysia
Country reports Malaysia
• A number of civil society organisations, including TI Malaysia, formed a lobbying group in October 2004, Infokl, to press for greater freedom of information. Housed at the Centre for Independent Journalism, Infokl will draft a freedom of information bill, including provisions for whistleblowers, for submission to government. It will also call for a review of the Official Secrets Act, which inhibits comment on many public sector activities.

The government’s anti-corruption campaign
The fight against corruption has been the centre piece of Prime Minister Abdullah Badawi’s government since it came to power in October 2003. The campaign has focused on prevention, including the formation of the National Integrity Plan (NIP), the Integrity Institute of Malaysia (IIM) and the Anti-Corruption Academy, but it has punitive aspects as well. It is too early to assess the real impact of the campaign but the signs are encouraging.

In April 2005, the government announced that the IIM would develop a National Integrity Index (NII), to assess progress in areas including corporate governance. The IIM was established in April 2004 to implement an NIP for 2004–08, aimed at reducing corruption and abuse of power, mainly through education and training. Since its inception, the IIM has conducted numerous courses on integrity for the private and public sectors, and in universities and schools.

The Anti-Corruption Academy, which is expected to open its doors in September 2005, is the first of its kind in the Asia-Pacific region. Established by the Anti-Corruption Agency (ACA) to train anti-corruption officials in Malaysia and from across the region, the academy will function as a centre for anticorruption capacity building, promoting best practices in investigation, monitoring and enforcement, and in newer areas such as forensic accounting and engineering. Although it has yet to begin operations, it has been welcomed by the Asian Development Bank and the Organisation for Economic Cooperation and Development.

Meanwhile, the ACA stepped up enforcement of the Anti-Corruption Act with a 47 per cent increase in corruption related arrests in 2004, compared to 2003, and 179 new cases registered for trial.1Among those charged in 2004 were the former land and cooperative development minister, Kasitah Gadam, and Eric Chia Eng Hock, a businessman closely associated with former prime minister, Mahathir Mohamad, who retired in October 2003 after 22 years in office. The charges were remarkable since the agency had been criticised for targeting only ‘small fish’, with some observers blaming this on the lack of independence of the attorney general, who held the final decision to prosecute.2

Other anti-corruption laws have not been enforced so effectively. The first prosecution under the Anti-Money Laundering Act of 2001 was only initiated in 2004, but a spate of prosecutions is expected in the near future.3

Despite this, there is continuing concern about the ACA’s independence. It forms part of the prime minister’s office and, though the king appoints the director general, he does so on the prime minister’s advice. This does not necessarily translate into executive interference with its investigations, but the former prime minister did remove ACA director general Datuk Ahmad Zaki in March 2001, in spite of his diligence and record of effectiveness.

Another aspect of the government’s strategy has been to limit the opportunities for corruption by improving public service delivery. To this end, an internal circular in November 2004 repealed the 1979 auditing system, setting out new objectives, functions and responsibilities. The new auditing regime will be responsible for all monetary and financial transactions, including verifying all the expenditure, profits, assets and stock managed.

In January 2004, the Public Complaints Bureau (PCB), which many had criticized for the complexity of its procedures, launched the MESRA Rakyat programme whereby it tours the country to listen to local complaints. Heads of government departments are also present at these meetthe-people sessions. At a session in Melaka state in July 2004, 278 citizens met 49 heads of department and raised over 40 issues.

The officer in charge reported that of the 40 cases brought up, 37 had been settled, while three were pending. All cases relating to corruption are referred to the ACA for further investigation. The PCB plans to monitor these investigations to ensure that action has been taken.

Procurement policies on the mend
In November 2004, a local newspaper published a front-page story on defective buildings and roads that had cost the taxpayer an estimated MYR2 billion (US $500 million).4 The response of the public works minister was that the fiasco was not the fault of his department, but of a group of contractors known as Project Management Consultants (PMC), set up in the 1990s and registered with the finance ministry.

PMC comprises several contractors who were awarded projects through direct negotiation, circumventing procurement regulations. A treasury circular in September 2000 sanctioned privileged consortia to cover five regions and exempted government departments from normal procurement procedures.5 This allowed agencies to implement their own projects through limited tenders or direct negotiations. The usual procedure had been to go through the public works department and, only if the latter were unable to take on the contract, could other contractors be selected. The justification for the new procedure was speedier completion of projects,6 but the cost doubled in some cases and the construction was seriously flawed. With a consultancy fee fixed at 1.5 per cent of a project’s cost, the PMC concept contributed to massive overruns and individual project failures.7

For example, the health ministry was forced to close the MYR500 million (US $133 million) Sultan Ismail Hospital on 27 September 2004 due to structural and design flaws. Repairs to bring it up to safety standards were estimated at MYR8 million (US$2 million).8 Work on the MYR167 million(US $44 million) Malaysian External Trade Development Corporation tower, due to have been completed in 1997, was not finished until mid-2005 and the costs rocketed to MYR400 million (US $106 million). Defects in the building were estimated to cost MYR28.4million (US $7.5 million).9 Even on modest projects, PMCs came in substantially over costs. According to Public Works Minister Samy Vellu, the ministry could construct a classroom for MYR55,000 (US $15,000), but when taken over by a PMC, the bill would soar to MYR120,000 (US $32,000).10 The public welcomed the new government’s move to abolish the PMC in March 2004.

Departments have been directed to comply with current procurement policies that use the tender system to ensure transparency and accountability. New guidelines may be issued to deal with specific contracts. For example, a treasury circular in December 2004 provides guidelines for the selection of contractors for public infrastructure maintenance, applicable to all government departments.11 The terms detail the use of open tenders and the participation of a more balanced group of public officials, including a representative from the public works department. These conditions comply with the ‘Model Law on Procurement of Goods, Construction and Services’, issued by the UN Commission on International Trade Law in 1995, but they do not divide the roles of selection and supervision, as outlined in TI’s ‘Minimum Standards for Public Contracting’.12 Even more significant is Malaysia’s failure to require companies to adopt a code of ethics against corruption, or to blacklist companies with a track record of corrupt practices.

Country reports
Mehrun Siraj and Sunita Chima (TI Malaysia)

Further reading
Tunku Abdul Aziz, ‘Fighting Corruption: My Mission’ (Kuala Lumpur: Konrad Adenauer
Foundation, 2005)
Zarinah Anwar and Kar Mei Tang, ‘Building a Framework for Corporate Transparency: Challenges
for Global Capital Markets and the Malaysian Experience’, International Accountant 18, 2003
Khaliq Ahmad Mohd Israil and Abul Hassan M. Sadeq, Ethics in Business and Management: Islamic
and Mainstream Approaches (Kuala Lumpur: Asian Academic Press, 2001)
Mazilan Musa, Izal Arif Zahrudin and Suzanna Che Moin (eds), ‘Ethics and Integrity in Malaysia:
Issues and Challenges’ (Kuala Lumpur: Integrity Institute of Malaysia, 2005)
TI Malaysia: www.transparency.org.my

Police corruption under fire
The Royal Commission on Enhancing the Operations and Management of the Police (RCP), set up in February 2004 to reform the police force, submitted a report of its findings to the king on 19 April 2005. Of the 926 complaints the commission received from the public between March 2004 and March 2005, 98 concerned police corruption.

The RCP’s enquiries revealed widespread corruption within the police force, including: monthly kickbacks from illegal factory owners and employers of illegal immigrants; demands for payments in exchange for providing detainees with food, or allowing them to make telephone calls; and accepting bribes to detain innocent people, or to decline from taking action against guilty parties.

The report also accuses police personnel of bribing senior officers to obtain promotions or transfers. The report cited public complaints of the lavish lifestyle some officers enjoy. One is alleged to have declared assets of MYR34 million (US $9 million), but no investigation was conducted to determine how he had acquired such a fortune. Influenced by the finding that corruption awareness is low among police personnel at all levels, the commission recommended that eliminating it must rank high on the reform agenda. It made 125 recommendations, of which 10 relate to corruption.

There were some indications that the government may be ‘sitting on’ the RCP’s report, as it does with reports from the Human Rights Commission.

The deputy prime minister announced that it would have to be scrutinised by all central agencies, the finance ministry and the department for public works, before any of its recommendations could be implemented.13 However, in May 2005, Prime Minister Badawi announced that a task force would meet to determine an order of priority for implementation and, a few weeks later, police were reportedly investigating the corruption cases cited in the report. In late June, five sub-committees were set up to study the recommendations in greater detail. Civil society has welcomed the RCP’s findings and is monitoring its implementation.

Notes
1. Keynote address by Prime Minister Abdullah Ahmad Badawi, World Ethics and Integrity Forum, Kuala Lumpur, 28–29 April 2005.
2. Transparency International, National Integrity Systems Country Study: Malaysia (Berlin: Transparency International, 2003).
3. Information provided by the deputy public prosecutor in the office of the attorneygeneral.
4. New Straits Times (Malaysia), 21 November 2004.
5. Treasury Circular, no. 4, 2000, at
www.treasury.gov.my/design/web/b_pekeliling.htm
6. Utusan Online (Malaysia), 14 November 2004.
7. New Straits Times (Malaysia), 21 November 2004.
8. The Star (Malaysia), 15 November 2004.
9. Bernama (Malaysia), 22 October 2004.
10. Utusan Online (Malaysia), 14 November 2004.
11. Treasury Circular, no. 7, 2004, at
www.treasury.gov.my/design/web/b_pekeliling.htm
12. See Global Corruption Report 2005, p. 4.


http://www.transparency.org/publications/gcr/download_gcr (22/9/06)


GLOBAL CORRUPTION REPORT 2006
(Source: Tables from GCR 2006)

Corruption Perceptions Index 2005

Country Ranking/ Country /2005 CPI Score
1 Iceland 9.7
2 Finland 9.6
3 New Zealand 9.6
4 Denmark 9.5
5 Singapore 9.4
6 Sweden 9.2
7 Switzerland 9.1
8 Norway 8.9
9 Australia 8.8
10 Austria 8.7
11 Netherlands 8.6
United Kingdom 8.6
14 Canada 8.4
15 Hong Kong 8.3
16 Germany 8.2
17 USA 7.6
18 France 7.5
21 Chile 7.3
22 Japan 7.3
23 Spain 7.0
26 Portugal 6.5
28 Israel 6.3
29 Oman 6.3
30 United Arab Emirates 6.2
32 Qatar 5.9
32 Taiwan 5.9
32 Uruguay 5.9
36 Bahrain 5.8
37 Cyprus 5.7
37 Jordan 5.7
39 Malaysia 5.1
40 Hungary 5.0
40 Italy 5.0
40 South Korea 5.0
43 Tunisia 4.9
45 Kuwait 4.7
59 Cuba 3.8
59 Thailand 3.8
70 Saudi Arabia 3.4
78 China 3.2
88 India 2.9
88 Iran 2.9
97 Algeria 2.8
98 Argentina 2.8
107 Vietnam 2.6
117 Afghanistan 2.5
117 Nepal 2.5
117 Philippines 2.5
126 Russia 2.4
130 Cambodia 2.3
137 Indonesia 2.2
137 Iraq 2.2
144 Pakistan 2.1
144 Sudan 2.1
155 Myanmar 1.8
158 Bangladesh 1.7

* ‘2005 CPI score’ relates to perceptions of the degree of corruption as seen by business people, academics and risk analysts, and ranges between 10 (highly clean) and 0 (highly corrupt).

* A total of 16 surveys were used from 10 independent institutions, and at least three surveys were required for a country to be included in the CPI.

• The survey involved 159 countries.

http://www.transparency.org/publications/gcr/download_gcr

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