How the Foreign Corrupt Practices Act is Affecting Asia – Part 2

Posted on by

By Benedict Lynn

In the second of this two part article examining how the Foreign Corrupt Practices Act (FCPA) will affect key nations in Asia-Pacific, we focus this week on ASEAN. In part one, we provide a detailed explanation of what FCPA is, what it entails, and its implications for foreign businesses in China and India.

The 10 member states that make up ASEAN are among the most populous and fastest growing economies in the world. Thanks to an abundance of cheap labor, the region is fast replacing China as a global manufacturing hub and the land is rich in natural resources. The December 2015 deadline for the ASEAN Economic Community (AEC), which aims to turn the 10 nation bloc into a single market and production base, is just around the corner.

Tariffs and other barriers to FDI are being slashed; previously well-guarded sectors are, for the first time, being opened up to the outside world; and movement of labor is growing ever freer. It therefore comes as no surprise that foreign investment into the region has been increasing dramatically in recent years.

RELATED: How the Foreign Corrupt Practices Act is Affecting Asia – Part 1

However, as is often the case with fast-growing frontier markets, corruption is rife. Underpaid bureaucrats and government officials will often expect payments for providing routine yet necessary services, and there is often a lack of political and regulatory transparency.  The line between the public and private sectors is often blurred, and there are constantly opportunities for bribery, either unwitting or otherwise.

Inevitably, the increasing flow of foreign investment has attracted the attention of FPCA investigators, who have been stepping up their efforts throughout the whole of the Asia-Pacific. In November, U.S. President Barack Obama met with APEC leaders who agreed to “elevate their efforts in fighting corruption and bribery” across the region.

Violating the FCPA can have severe consequences and a full understanding of the law and how it affects where your business operates is therefore paramount.

Singapore

The city state is something of an outlier. It ranks consistently high in Transparency International’s Corruption Perceptions Index (CPI) as not just the least corrupt ASEAN nation, but one of the least corrupt countries in the world. This year it ranked seventh out of 175 countries. Its transparent legal regime and modern banking system have made Singapore a popular destination for foreign investment, particularly amongst those hoping to launch their operations into ASEAN. Risk of corruption is minimal, and there has been no recent action by the FCPA there. Indeed, Singapore has become something of a compliance hub for the region.

Myanmar

At the other end of the scale is Myanmar. Ranking this year as 156th on the CPI, both the most at risk ASEAN member and one of the most corrupt countries in the world. The young republic, still fresh from an oppressive military regime, has only recently had certain sanctions removed by U.S. authorities. This loosening of restrictions is one of the most significant changes in the region in recent years.

Myanmar is rich in natural resources and precious metals which, along with its many newly opened sectors (notably telecommunications) and various infrastructure projects, make the 24th most populous country in the world an attractive destination for foreign investment.

The greatest risk comes in the form of third party agents and intermediaries who may be acting on behalf of foreign officials. Due diligence is difficult as the Burmese usually do not have surnames, so a solid compliance program is crucial.

Vietnam

Despite some recent local efforts to crack down on corruption, Vietnam ranks in the bottom half of the CPI at 119th. There is currently no dedicated local anti-corruption agency, nor much in the way of transparency when it comes to government processes. Local intermediaries and agents should be treated with suspicion, and SOEs pose a particular risk. Just last month clinical life science research company Bio-Rad Laboratories was fined US$55 million for making payments to officials.

RELATED: What China’s Latest Anti-Corruption Campaign Means for Foreign Investment

As previously mentioned, steps are being taken locally to remedy the issue, but foreign investors in Vietnam should be wary. A 2012 survey released by the Vietnam Chamber of Commerce and Industry revealed that, of the 270 businesses, entrepreneurs and business associations interviewed, about half had to pay bribes to officials for the right to bid on contracts for public sector work.

Indonesia

Indonesia is one of the largest economies in ASEAN and the third most populous country in Asia. Rich in natural gas and other resources, it is a popular destination for foreign investment. Unfortunately corruption levels are high, as evidenced by a CPI ranking of 110th. Politicians regularly take bribes and, similar to Vietnam, SOEs dominate the economy.

There have been several high profile FCPA cases over the last few years. Most recently, Japanese trading company Marubeni corp. was ordered to pay US$88 million for making payments to Indonesian officials to win an electricity contract as part of a joint venture with French power-equipment maker Alstom Power Inc. Several former senior executives at Alstom have pleaded guilty to the charges, and another is scheduled for trial in June.

As for local enforcement, the KPK anti-corruption agency is very active.

Thailand

Thailand is well known for its political instability, which creates high levels of corruption in the judicial and law enforcement sectors. It is a major global manufacturing hub which attracts large amounts of foreign investment. There are several domestic anti-corruption laws in place, but these are poorly enforced and the country ranks towards the lower half of the CPI at 85th.

Foreign investors need to be wary in Thailand, where the distinction between bribery and “offering a gift” is ambiguous. The Bio-Rad case mentioned above under Vietnam also involved the failure to detect a bribery scheme in Thailand which, as noted, cost them dearly.

The risks and costs of violating the FCPA, not to mention other major laws such as the UK Bribery Act (UKBA) and even domestic laws, are severe. Cultural differences can mean that what is considered a bribe for FCPA purposes can be a normal part of doing business where you are investing. This should not be a discouragement. Domestic laws are being increasingly enforced, and 2015 realisation of the AEC will result in a more unified and transparent legal and regulatory system throughout the region. Most important is a solid compliance plan which includes broad training and education.

The rewards of investing in ASEAN are great, and have been reaped successfully by many who have not fallen foul of corruption laws.


About Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email asia@dezshira.com or visit www.dezshira.com.

Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

 

Related Reading

Manufacturing Hubs Across Emerging Asia
In this issue of Asia Briefing Magazine, we explore several of the region’s most competitive and promising manufacturing locales including India, Indonesia, Malaysia, Singapore, Thailand and Vietnam. Exploring a wide variety of factors such as key industries, investment regulations, and labor, shipping, and operational costs, we delineate the cost competitiveness and ease of investment in each while highlighting Indonesia, Vietnam and India’s exceptional potential as the manufacturing leaders of the future.

The Gateway to ASEAN: Singapore Holding Companies
In this issue of Asia Briefing Magazine, we highlight and explore Singapore’s position as a holding company location for outbound investment, most notably for companies seeking to enter ASEAN and other emerging markets in Asia. We explore the numerous FTAs, DTAs and tax incentive programs that make Singapore the preeminent destination for holding companies in Southeast Asia, in addition to the requirements and procedures foreign investors must follow to establish and incorporate a holding company.

An Introduction to Tax Treaties Throughout Asia
In this issue of Asia Briefing Magazine, we take a look at the various types of trade and tax treaties that exist between Asian nations. These include bilateral investment treaties, double tax treaties and free trade agreements – all of which directly affect businesses operating in Asia.

 

Leave a Reply

Your email address will not be published. Required fields are marked *

Never Miss an Update

Subscribe to gain even better insights into doing business in Asia. Subscribing also lets you to take full advantage of all our website features including customizable searches, favorite, wish list and gift functions and access to otherwise restricted content.

Scroll to top