The Philippines

The Philippines Corruption

Report
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Snapshot

High corruption levels severely restrict the efficiency of

businesses operating in the Philippines. Extensive bribery within the public
administration and vague and complex laws make foreign companies vulnerable
to extortion and manipulation by public officials. Favoritism and undue influence are
widespread in the courts, leading to time-consuming and unfair dispute resolution, and
to an uncertain business environment. Corruption plagues the customs administration,
and fraud routinely occurs for companies when filing import and export documentation.
The Anti-Graft and Corrupt Practices Act criminalizes active and passive
bribery, extortion, abuse of office and conflicts of interest. Giving gifts, except for gifts of
insignificant value given in line with local customs, is prohibited. Facilitation
payments are not addressed by anti-corruption regulations and private sector bribery is
not criminalized. The legislative framework for fighting corruption is scattered and is not
effectively enforced by the weak and non-cooperative law enforcement agencies.

Last updated: October 2017

GAN Integrity

Judicial System
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
Actcriminalizes 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
The Constitution guarantees freedoms of speech and of expression, but in practice
these freedoms are not consistently upheld (HRR 2016; BTI 2016). The media
environment is largely privately owned and diverse, and the state generally
exercises very little censorship (BTI 2016). The views represented in the mainstream
media are heavily influenced by the oligarchical owners of many of the outlets (BTI
2016). The Philippines is the second most dangerous country in the world for journalists
to operate in, as measured by the number of journalist deaths (BTI 2016). The state is
not directly responsible for the violence, which can mostly be blamed on local
strongmen and criminals and the weakness of the authorities (BTI 2016). The existence
of libel and defamation laws remains a problem and are frequently used by officials and
powerful individuals to try to silence journalists (FotP 2016). The media does frequently
report on high-level corruption cases (FotP 2016). Independent observers report that
bribes and other incentives are often used by high-level officials to motivate journalists
to create one-sided reports for the official’s benefit (HRR 2016). Internet access is
widely available, but there are concerns about the government trying to install some
degree of censorship (FitW 2017). The Philippine press is classified as ‘partly free’
(FotP 2016).

Philippine civil society is active and is represented by a wide variety of different

organizations. Public participation is high and civil society organizations (CSOs) enjoy a
high level of social capital (BTI 2016). CSOs are normally not included in formal
decision-making, but they play a large role in initiating legislation and steering debate in
Congress (BTI 2016). There are a multitude of watchdog organizations monitoring
implementation of policy (BTI 2016).

Sources
 World Economic Forum: Global Competitiveness Report 2017-2018.
 World Bank: Doing Business 2017.
 US Department of State: Investment Climate Statement 2017.
 Freedom House: Freedom in the World 2017.
 Natural Resource Governance Institute: Philippines Country Profile 2017.
 Mining: “Philippines Shows Anti-Mining Environment Minister the Door”, 3 May 2017.
 New York Times: “Philippines Moves to Shut Mines Accused of Polluting”, 27 April 2017.
  Philippine News: “NBI Entrapment Operation: Bacolod BIR Officer Caught Extorting
Money”, 16 March 2017.
 CNN Philippines: “Sombero Tries To Clear Name, Says There Was ‘Extortion’ Not
‘Bribery’, 16 February 2017.
 Philstar: “Customs Sets Probe on P50B Smuggling”, 12 February 2017.
 ABS CBN: “Long History of Corruption in Philippine Police Force”, 18 January 2017.
 Social Weather Station: Survey of Enterprises on Corruption 2016.
 Bertelsmann Foundation: Transformation Index 2016.
 US Department of State: Human Rights Report 2016.
 Extractive Industries Transparency Initiative: Philippines Country Profile 2016.
 World Economic Forum: Global Enabling Trade Report 2016.
 Freedom House: Freedom of the Press 2016.
 Inquirer: “Trader Claims Makati Judge Sought P15M Via Middleman”, 24 August 2016.
 Rappler: “Customs Bureau Submits ‘Strong Case’ vs ‘Corrupt’ employee to DOJ”, 22
August 2016.
 World Economic Forum: Global Competitiveness Report 2015-2016.
 World Bank Group: Enterprise Surveys – Philippines 2015.
 UNODC: Philippines UNCAC Implementation Review 2014.
 Wall Street Journal: ‘New Philippines customs chief cracks down on corruption’, 10
March 2014.
 Quartz: “Smuggling Cost the Philippines USD 3 Billion in 2011”, 3 February 2014.
 Manila Bulletin: ‘If the price is right’, 2 February 2014.
 Office of the Ombudsman: 2013 National Household Survey on Experience with
Corruption in the Philippines.
 Natural Resource Governance Institute: Resource Governance Index 2013.
 Sunlight Foundation: ‘Transparency case study: public procurement in the Philippines’, 7
October 2013.

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program implementation and also compliance and integrity training.

Working with the Business Anti-Corruption Portal was a great learning experience for me. I really
value the knowledge and insight you love.
 The site provides a wealth of practical anti-corruption resources to support a solid preventative
approach, covering subject such as processes, due diligence, practical tools to support compliance
program implementation and also compliance and integrity training.

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