Sunday, January 18, 2015

Corruption and business ethics in Korea

First published in The Korea Herald.

On most occasions, the Korean government latches on to any new international report or study that commends the country, be it on competitiveness, ease of doing business, regulatory reforms or education. However, there has been remarkable silence from bureaucrats and government officials regarding the latest Corruption Perceptions Index recently released by Transparency International.

In its much-awaited yearly report, the nongovernment organization ― calling itself the “global coalition against corruption,” with 100 national chapters and an international secretariat in Berlin ― gives a comparative list of corruption worldwide. The organization is widely recognized as a corruption crusader and has built up a solid reputation since it was established in 1993.

The cornerstone of its work is the annual Corruption Perceptions Index. It also publishes the Global Corruption Barometer, Bribe Payers Index and Government Defense Anti-Corruption Index.

The CPI quantifies the perceived levels of public sector corruption around the globe, and over the past two decades has become one of the key corruption indices worldwide.

It focuses on corruption that involves public officials, civil servants or politicians. The data sources used to compile the index include questions relating to the abuse of public power and focus on bribery of public officials, kickbacks in public procurement, embezzlement of public funds, and the strength and effectiveness of public sector anticorruption efforts. The scores, therefore, provide a reflection of the amount of corruption faced by ordinary people and businesses in a country.

In the 2014 CPI, Korea ranked 43rd among the 175 countries surveyed. The Asian countries and territories ranked above Korea include Singapore (7), Japan (15), Hong Kong (17), UAE (25), Qatar (26), Bhutan (30), Taiwan (35) and Israel (37). Interestingly, Korea was ranked No. 39 in 2010 and No. 40 in 2005.

What does this tell us?

Clearly, Korea has a long way to go when it comes to tackling corruption. As long as its government and politicians are perceived to be corrupt, this will hamper investment and affect growth. With other territories in the vicinity being perceived as less corrupt, it is natural for investors to eye them first.

It is true that over the years the country has made many efforts to tackle corruption and has tweaked a lot of regulations to ensure transparency. Anticorruption acts have also been enacted. But it clearly is not enough.

Excessive bureaucracy, weaknesses in corporate governance, inconsistent application of laws and regulations, and nontransparent regulatory processes are among the challenges that have been cited by many foreign companies in Korea.

Moreover, the corruption watchdog Anti-Corruption and Civil Rights Commission has been criticized for its poor ability to focus on corruption issues as it lacks independence and efficiency. It does not have a mandate to independently initiate investigations, but it can request cooperation from the relevant agencies, such as public prosecutors.

In the 2013 Global Corruption Barometer, the current government’s anticorruption efforts were found to be “ineffective,” with 39 percent of those surveyed perceiving that the level of corruption had increased in the previous two years. Moreover, 70 percent of households evaluated Korean political parties as being “corrupt” or “extremely corrupt.”

In last year’s World Competitiveness Report issued by the World Economic Forum, Korea ranked 26th out of 144 countries, its lowest position in 10 years. It also ranked 33rd in terms of transparency of government policymaking, and 97th in terms of public trust.

For that matter, for many years now the foreign media has constantly reported that the chaebol in Korea are so powerful that the ACCRC has no jurisdiction over them, even when they are involved in tax evasion, bribery and price-fixing. Except for a few outlets, the local media has been largely silent on the close nexus between politicians and the large business houses. It is evident that despite the protests by civil society, they are only getting stronger.

Each time a big-shot chaebol head is snagged by the prosecution and convicted by the courts, our politicians step in to bail them out of their misery. The constant refrain one hears from them is their “importance to the national economy.” Earlier the courts too used the same logic to give suspended sentences and a rap on the knuckles to “powerful” white-collar criminals, but thankfully now such judgments are rare.

In fact, it has become a global joke, and Korea has become a laughing stock for continuing with the policy of frequently granting special presidential pardons to businessmen, but the thick-skinned politicians have blinders and shamelessly continue their routine.

In the latest instance, ruling party politicians started howling for presidential pardons for some prominent chabeol owners in end-December. Finance Minister Choi Kyung-hwan too is reported to have recommended for the presidential office to release top chaebol owners.

By their logic, if you are rich and powerful with a huge business empire, you can freely break the law, because putting you behind bars will hamper your company, and since your company is so important for Korea, it will hamper economic growth and push Korea down from its advanced country status. What they do not realize is that if businessmen are given a free hand to evade taxes, set up slush funds and cheat investors, the country will automatically fall in the eyes of the world. Overseas investors will be put off, which will only stall economic growth ― much more so than if the businessmen are behind bars.

President Park Geun-hye has vowed to administer the law strictly and treat all criminal offenders equally. To that end, she has not granted special pardons to any politicians or businessmen in prison since taking office in early 2013. It remains to be seen whether she will succumb to pressure this time around. If she does, then many of the businessmen will continue to have scant regard for the law and Korea’s corruption ranking will continue to slip. If she does not, then it will be a strong signal that the law is equal for everyone.

As it is, Korea is perceived to have a pervasive system for conveying favors in return for monetary consideration, along with lax enforcement of existing anticorruption laws.

President Park should walk the talk and make abolishing corruption a top priority by overhauling the anticorruption systems. She should go beyond the Kim Young-ran law ― a comprehensive anticorruption bill aimed at public officials, likely to be enacted by January 2016 ― and end the practice of dealing out pardons to convicted chaebol chieftains.