CNET : News : Story Friday, February 18, 2000 

Kickbacks: more norm than exception in Malaysia
By Julian Matthews
Friday, February 18 2000

KUALA LUMPUR--Kickbacks for international business deals involving Malaysians are more the norm rather than the exception, says Transparency International vice chairman Tunku Abdul Aziz Tunku Ibrahim.

"It is fairly common, especially when it involves large infrastructure projects," he said when commenting on an Asahi Shimbun report last Friday that Telekom Malaysia allegedly received kickbacks from Mitsui & Co of Japan to favor the company for a switchboard deal.

Speaking in a telephone interview with CNET Malaysia, Abdul Aziz said that while bribery is "not endemic" in Malaysia as it is in neighboring countries, there is a widely-held perception that any international deals involving Malaysians are "invariably fraught with corruption."

Abdul Aziz, who is also president of Malaysian chapter the Berlin-based international anti-corruption coalition, urged the government to apply the full weight of the law against the guilty.

"For Telekom Malaysia and other state-controlled enterprises there is an urgent need to put into place clear and transparent procedures for procurement.

"In this case, obviously we need to look at both giver and taker as it takes two to tango. If complicity is proven, Mitsui should be blacklisted and barred from participating in all future contracts," he said, adding that the stern action was necessary to send a clear signal to all international bidders in future.

The Japanese newspaper, quoting sources at the Tokyo Regional Taxation Bureau, said Mitsui paid about 300 million yen (US$2.8million) in kickbacks to Telekom Malaysia through a "dummy" company in return for a telephone switchboards supply contract worth an estimated 10 billion yen.

Mitsui won the orders in a syndicate with NEC Corp in late 1996 to supply a total capacity of about 800,000 circuits after beating a number of European rival bids. The switchboards were delivered from 1996 to 1998.

The kickbacks were believed to have been paid as "commissions" in 1997 to a Malaysian agent. Mitsui was also found to have paid a total of 100 million yen in similarly questionable payments to South Korea, Morocco, Jordan and Qatar in the name of "agent fees" and other items, the report said.

Mitsui has denied the allegations while Telekom Malaysia said Monday it took the allegations "most seriously" and would conduct its own investigation.

Malaysian Energy, Communications and Multimedia Minister Leo Moggie has gone on record to say initial checks showed no apparent wrongdoing, while Malaysia's Anti-Corruption Agency has ordered an investigation.

Abdul Aziz said that in Malaysia corruption is usually instigated at "very high levels" particularly due to the political patronage the private sector enjoys.

"The cosy relationship between government and private sector is a breeding ground for such practices. Corruption thrives because the difficulties people have in accessing information," he said.

Abdul Aziz, who is also a member of the World Bank High Level Anti-Corruption Advisory Group for East Asia and Pacific Region, suggests that the solution would be to encourage more transparency and accountability in all business dealings and perhaps adopt a Freedom of Information Act.

He added that if Malaysia becomes a signatory to the proposed World Trade Organization Transparency Agreement it will "close another window of opportunity for grand corruption, improve investor perceptions and provide for better returns in public sector spending."

Malaysia has also not ratified the Organization for Economic Co-operation and Development (OECD) Anti-Bribery Convention that proposes making bribery of foreign officials a criminal offence.

Abdul Aziz also pointed out that Malaysia has fared poorly in Transparency International's annual Corruption Perceptions Index (CPI) survey.

The 1999 annual survey ranks Malaysia 32 along with Costa Rica for perceived levels of corruption out of 99 countries, down three places from its 29th ranking in 1998.

The CPI findings is used extensively by foreign investors and academic and financial institutions, including the World Bank and the International Monetary Fund.

TI had commissioned a second survey, called the Bribe Payers' Index (BPI), for the first time last year in response to Prime Minister Mahathir Mohamad's criticism that the CPI was unfair to developing countries.

"But Malaysia did not come through smelling of roses either way," he said. On a scale of 0 to 10, with 10 indicating a corruption-free exporting country, Malaysia ranked 15 out of 19 with a score of 3.9.

He said Singapore also fared poorly in the survey with a ranking of 11 and a 5.7 score. "While keeping their house clean within its borders, Singaporean businessman are quite happy to bribe overseas and do not show the same domestic integrity."

Gallup International Association conducted in-depth interviews with 779 senior executives in emerging market economies for the survey.

In July, 1997, Telekom Malaysia was cleared in an investigation on irregularities in the award of tenders to telco equipment supplier Perwira Ericsson Sdn Bhd by the then deputy prime minister Anwar Ibrahim.

Anwar had ordered the investigation on Jan 15 that year for a RM2.07 billion digital exchange contract bid in 1992 of which Perwira Ericsson was apportioned RM414 million.

Perwira Ericsson is a joint-venture company between the Malaysian Armed Forces fund and LM Ericsson of Sweden and had been singled out for receiving major contracts from Telekom.

Anwar clarified, however, that Perwira Ericsson got most of Telekom's contracts because the company offered the lowest prices and met with the technical requirements.

The anti-corruption investigations apparently were ongoing since 1992. Telekom Malaysia is a public-listed privatized entity and one of the most heavily capitalised firms on the Kuala Lumpur Stock Exchange, but is still largely controlled by the state.

It is also the dominant local fixed-line player with sizeable marketshare in the mobile and Internet services and wide-ranging investments in various developing countries.

Ericsson is a major supplier to Malaysia's public switched telephone network, and the development of networks for the major cellular players in the country.

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