Monday, March 31, 2014

Japan loses credibility as corruption-tainted aid projects continue

Another suspected bribery case related to Japan’s development aid has come to light.

A Tokyo-based railway consulting company allegedly paid a total of 100 million yen ($972,762) in kickbacks to government employees and others from Vietnam, Uzbekistan and Indonesia. The company had been awarded contracts for Japan’s official development assistance projects worth 6 billion yen in these countries.

The Japanese government has been pursuing what it calls “values-based diplomacy” designed to promote democracy and the rule of law in developing countries.

As part of this foreign policy agenda, Japan has pledged to provide 2 trillion yen in aid to Southeast Asian nations. It has also announced plans to expand Japan’s exports of infrastructure-related technologies and services.

The government’s planned expansion of the development aid program underscores the need for Japan to prevent itself from being considered a nation tolerant of corruption.

In a troubling sign, a report by an international nongovernmental organization classified Japan as a nation that is not eager to pursue cases involving Japanese businesses bribing foreign parties.

To clear its name, Japan must do more to elicit cooperation from countries that receive Japanese money to stamp out corruption related to aid projects. Japan should also step up its efforts at home to crack down on such cases.

Companies charged with overseas bribery face a fine of up to 300 million yen. That’s no small amount. But it has been pointed out that the penalty doesn’t deter businesses from bribery if the expected benefits from aid projects are bigger than the maximum fine.

The United Nations Convention against Corruption calls for establishing legislation to confiscate all benefits from contracts won through bribery. More than a decade has passed since Japan signed the treaty. The government should act swiftly to revise its related laws accordingly.

In another recent case, the U.S. Justice Department fined a Japanese trading company 9 billion yen for bribing Indonesian government officials to secure a thermal power project. The United States and Britain are stiffening penalties against companies that have failed to take measures aimed at deterring misconduct by employees. This is an age when companies with poor legal compliance records are punished harshly.

It is said that in many cases, overseas subsidiaries actually pay bribes to bag juicy contracts on behalf of their Japanese parent companies.

Experts say companies should establish a system for coordinated anti-corruption campaigns involving all members of corporate groups and ensure that parent companies provide effective compliance guidance for subsidiaries and affiliates.

Japanese companies should heed that advice.

Companies often face demands for bribes from foreign government officials who have decision-making power concerning aid projects. Granting such demands promotes corruption in the countries and effectively hampers their economic growth.

Markets don’t develop in corrupt countries because they cannot attract foreign investment. Any act of greasing the palms of officialdom runs counter to the purpose of official development assistance.

In other words, Japan can significantly contribute to the development of countries by proposing steps to root out corruption and supporting their efforts to take such steps. If companies try to use bribes to win contracts, aid donors have to pay more for projects while development costs for recipients rise. Such a breach of trust is detrimental to the interests of both sides.

Independent efforts to clean up corruption by single countries cannot be very effective. Japan should work with other countries and demand anti-graft measures from aid recipients as a condition for development assistance.

As an ODA policy priority in this new age, the Foreign Ministry has decided to expand support to help developing countries build up legal systems by dispatching legal experts there. The planned legal systems are expected to include anti-corruption laws and training for legal experts.

When a bribery scandal involving a Japanese company in Vietnam surfaced six years ago, the ministry announced plans to increase aid in this area as a way to prevent a recurrence.

But Japan’s aid to this area is still small.

This time around, the government should follow through on its pledge and restore the credibility of Japan.

--The Asahi Shimbun

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