Study: Asia corruption increasing

Business corruption has been increasing in Asia since the economic downturn, but private equity may act as a catalyst for changing attitudes.

Business leaders across Asia believe corruption across the region is increasing, in part to compensate for the economic downturn, according to a recent Ernst & Young study that profiled hundreds of business executives around the world.

Globally, 39 percent of respondents believe corruption is widespread in their country. But for respondents in India and Indonesia, the number was up to 70 and 72 percent, respectively, according to the study. 

Additionally, although only 15 percent of respondents were willing to make cash payments to retain business globally, the percentage increased to 28 in India and Vietnam, and to 60 in Indonesia. 

The real problem, according to Baker & McKenzie principal Andrew Martin, is that local anti-corruption laws are simply never enforced.

Western anti-corruption laws – such as the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act – are being enforced aggressively in Asia because they have international jurisdiction over all firms with any connection to their countries, Martin said. Private equity firms especially know they are liable for any corruption in Asia under US or UK law, he said.

Martin believes that the desire to do business with private equity will eventually force a change in Asia’s corruption culture. Corrupt practices are bound to emerge as more private equity firms do due diligence on potential investments, making payoffs and kickbacks “unsustainable”.