VZCZCXRO7038
OO RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHML #3669/01 3190914
ZNR UUUUU ZZH
O 150914Z NOV 07
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8879
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS COLLECTIVE
RHHMUNA/CDR USPACOM HONOLULU HI IMMEDIATE
RUEAIIA/CIA WASHINGTON DC IMMEDIATE
RUEHLMC/MCC WASHINGTON DC IMMEDIATE

UNCLAS SECTION 01 OF 04 MANILA 003669 
 
SIPDIS 
 
AIDAC 
 
USAID FOR AA/ANE; AA/EGAT; DA/ANE/EAA/PHIL DESK; 
USAID ALSO FOR ANE/SPOS; ANE/TS; DCHA/DG; 
STATE FOR EAP/EP; EB/IFD PETER DELP; USAID/COO/ODP 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR EAP/MTS 
 
E.O. 12958:N/A 
TAGS: PGOV KCOR PINR RP
SUBJECT: CORRUPTION IN THE PHILIPPINES: CHALLENGES AND PROGRESS 
 
REF: MANILA 3086 
 
MANILA 00003669  001.4 OF 004 
 
 
¶1.  (SBU) SUMMARY:  Corruption, both real and perceived, remains an 
ongoing challenge in the Philippines.  The recent conviction for 
plunder of former president Joseph Estrada has highlighted the 
corruption issue, as have continuing corruption allegations 
involving a range of government officials throughout the country.  A 
free and active media, along with a vibrant civil society, ensure an 
increasingly vigorous public debate on corruption-related issues. 
Likewise, political leaders are speaking more openly about the need 
seriously to combat corruption.  Lost in the public debate and 
partisan finger-pointing is the progress that the Philippine 
government is making to strengthen its ability to prevent and fight 
corruption and the improved prospects for addressing a long legacy 
of malfeasance.  This cable provides a brief overview of the problem 
and also discusses USG assistance to help build the Philippine 
government's long-term capacity to prosecute, and for the judiciary 
to effectively handle, corruption cases.  END SUMMARY. 
 
LONG LEGACY OF CORRUPTION 
------------------------- 
¶2.  (U) Corruption in the Philippines has had a long legacy.  Most 
notably during the Marcos era (1965-1986), corruption has been an 
endemic problem that has contributed significantly to the weakening 
of many national institutions.  Marcos is widely believed to have 
systematically plundered billions of dollars by taking over large 
corporations; creating state monopolies for vital sections of the 
economy, such as sugar and coconuts; using offshore dummy companies 
to launder his ill-gotten money; extracting kickbacks from foreign 
companies doing business in the Philippines; skimming foreign loans; 
and directly raiding the public treasury. 
 
¶3.  (U) While Marcos's brand of blatant corruption may be a thing of 
the past, corruption remains a pervasive challenge at all levels of 
government.  According to the most recent Transparency International 
survey, the Philippines ranks 131st out of 180 nations in the 
perception of corruption by business and country analysts -- the 
higher the number, the higher the level of corruption.  (At 43rd, 
neighboring Malaysia ranked far ahead in fighting corruption, while 
Indonesia lagged behind Philippines at 143rd.) 
 
PETTY CORRUPTION 
---------------- 
¶4.  (U) Corruption is far from limited to high-level government 
officials, beginning with poorly paid, low-level local government 
workers.  An ineffective government bureaucracy -- waiting periods 
for the most basic actions, such as paying for a traffic ticket, can 
take an entire day -- perpetuates a system whereby otherwise 
law-abiding citizens find it necessary to pay bribes ("lagay") to 
government officials for immediate processing and issuance of 
documents.  This practice can extend to "fixers," individuals who 
are not government officials but who are related, or have access, to 
them.  The practice may also involve outright extortion, where the 
government official refuses to process paperwork unless he is 
compensated. 
 
CONTRACT CORRUPTION 
------------------- 
¶5.  (U) Government agencies that handle publicly funded projects, 
particularly those involving large sums of money, are fertile ground 
for corrupt officials.  Officials who award contracts often demand 
bribes from would-be bidders.  A recent Social Weather Station 
business survey found that three out of five business managers 
working on government contracts said they were asked for bribes in 
¶2006.  Ghost projects and payrolls -- whereby non-existing projects 
are financed by the government while non-existing personnel are paid 
salaries and allowances -- can be found in those government agencies 
involved in formulation and implementation of infrastructure 
projects.  Evasion of public bidding regulations in the awarding of 
contracts ensures many contracts are awarded to favored business 
enterprises or contractors, who can provide financial kickbacks. 
Infrastructure contracts are passed from one contractor to another 
so that in the process each contractor retains a percentage of the 
project value, often resulting in the use of substandard materials 
or unfinished projects. 
 
LAW ENFORCEMENT CORRUPTION 
-------------------------- 
¶6.  (U) Corruption in law enforcement is equally widespread.  At the 
street level, it is not uncommon for officers to demand petty bribes 
 
MANILA 00003669  002.4 OF 004 
 
 
for traffic and other minor offenses, real or simply alleged.  Law 
enforcement officers are also known to extract protection money 
("tong") in exchange for permitting businesses to conduct legitimate 
business operations without necessary permits, or for illegitimate 
businesses, such as gambling and drug lords, to conduct illegal 
activities.  The law enforcement officer then protects the business 
from other law enforcement authorities. 
 
SIGNS OF PROGRESS 
----------------- 
¶7.  (U) The Office of the Ombudsman's prosecution of Estrada for 
plunder and the Sandiganbayan anti-graft court's unprecedented 
conviction and 40-year sentencing of the former president clearly 
indicate that the Philippine government is taking significant steps 
to address the problem.  (While Estrada was pardoned, he was 
required to forfeit bank accounts and property amassed illegally 
during his two-year tenure, as decreed by the graft court that found 
him guilty.)  With substantial Philippine government support, as 
well as other donors including the U.S. Government, the Ombudsman's 
Office and the Sandiganbayan anti-graft court, have been steadily 
making significant progress along with other Philippine government 
agencies. 
 
THE OFFICE OF THE OMBUDSMAN 
--------------------------- 
¶8.  (U) As the constitutionally independent institution for 
anti-corruption efforts, the Office of the Ombudsman has the 
authority to investigate and prosecute corruption cases in the 
public sector.  It initiates its own investigations and prosecutions 
but also receives cases from other institutions, such as the 
Department of Finance's Revenue Integrity Protection Service, the 
Presidential Anti-Graft Commission, and the Armed Forces of the 
Philippines. 
 
¶9.  (U) Starting from an abysmal six percent conviction rate in 
2002, the Ombudsman has registered significant gains in prosecuting 
corrupt public officials.  With the help of newly recruited 
investigators and prosecutors trained with USAID assistance, the 
Ombudsman succeeded in raising the conviction rate to 33 percent by 
the end of 2005.  While the cumulative conviction rate of cases 
decided between December 2005 and June 2007 rose slightly to 35 
percent, the conviction rate for the first six months of 2007 alone 
rose to 63 percent. 
 
¶10.  (U) Notwithstanding this progress, the Ombudsman continues to 
face certain challenges.  Investigations are hampered by Philippine 
banking secrecy laws that limit access to certain crucial financial 
information, and by poor protection for would-be whistleblowers. 
Many investigations are initiated based on "lifestyle checks" - 
indications that government staff are living beyond their means and 
cannot explain the source of their assets.  These may be carried out 
by Ombudsman investigators or by other government agencies, but are 
generally re-investigated by the Ombudsman before being submitted 
for prosecution. 
 
THE SANDIGANBAYAN ANTI-GRAFT COURT 
---------------------------------- 
¶11.  (U) The Ombudsman prosecutes cases of high-level officials at 
the Sandiganbayan anti-graft court, while Department of Justice 
attorneys are deputized to prosecute corruption cases of lower-level 
officials in regional trial courts throughout the country.  The 
Sandiganbayan is composed of a presiding justice and 14 associate 
justices, sitting in five divisions of three justices each.  It is 
served by the Office of the Ombudsman (to which the Office of the 
Special Prosecutor belongs), which investigates and prosecutes 
crimes under the Anti-Graft and Corrupt Practices Act.  By the end 
of 2006, the Sandiganbayan had a total caseload of 2,114 cases, or 
an average caseload of 423 cases per division. 
 
¶12.  (U) The high caseload and the general practice in Philippine 
courts to try cases on a piecemeal basis combine to make trials at 
the Sandiganbayan last an average of 6.7 years from filing to 
promulgation.  Delay is often a means by which the guilty avoid 
punishment for their crimes, and in the case of corruption, continue 
enriching themselves with public funds.  Delay in the disposition of 
cases also erodes the effectiveness of the Sandiganbayan as a 
powerful deterrent to graft and corruption.  While delay remains a 
significant problem, the Sandiganbayan, assisted by the U.S. 
Government, has taken steps recently to address the issue by 
improving case management and making several important procedural 
 
MANILA 00003669  003.4 OF 004 
 
 
changes, most notably through the move to continuous trials (see 
paragraph 19 below). 
 
DEPARTMENT OF FINANCE - 
REVENUE INTEGRITY PROTECTION SERVICE (RIPS) 
------------------------------------------- 
¶13.  (U) The Revenue Integrity Protection Service detects, 
investigates, and prevents corruption in the revenue generating 
agencies of government under the Department of Finance.  Its current 
successes include filing of 34 graft cases so far in 2007, compared 
to 18 cases for the entire year in 2006.  To date, 18 officials of 
the Bureau of Internal Revenue or Bureau of Customs have been 
suspended by the Ombudsman under the program.  Six Bureau of Customs 
officials recently were suspended for alleged smuggling of 16 luxury 
vehicles and cases were filed against two Customs officials for the 
illegal release of another 14 high-end luxury vehicles at the Subic 
Bay Freeport Economic Zone in Olongapo City.  This is partly in 
response to the complaints lodged by American car manufacturers. 
 
BUREAU OF INTERNAL REVENUE - 
RUN AFTER THE TAX EVADERS PROGRAM (RATE) 
---------------------------------------- 
¶14.  (U) The RATE Program, created by the Bureau of Internal Revenue 
in 2005, pursues tax evaders and those involved in facilitating tax 
evasion.  According to the National Tax Research Center, an 
estimated P179 billion in revenues has been lost through tax evasion 
from 2001 to 2006 alone.  From the time the program began in 2005, 
some 87 RATE cases have been filed with the Philippine Department of 
Justice against Bureau of Internal Revenue officials.  The Program 
achieved a 12.2 percent increase in corporate tax return filers as 
of June 2007 and 3.9 percent in individual taxpayer returns not 
counting suspended accounts which will be tallied at end-year. 
 
BUREAU OF CUSTOMS - 
RUN AFTER THE SMUGGLERS PROGRAM (RATS) 
-------------------------------------- 
¶15.  (U) The RATS Program, established by the Bureau of Customs in 
July 2005 and formally launched in 2006, is mandated to detect and 
prosecute smugglers and other customs and tariff law violators. 
Despite being a relatively new program, RATS has already achieved 
significant successes.  Thru September 2007, some 52 cases have been 
filed with the Philippine Department of Justice under against the 
target set by the MCC Threshold Program of 32 during this period. 
Some 11 high value cases have already been filed with the Court of 
Tax Appeals.  To further help prevent smuggling, the Bureau of 
Customs has taken its initial first steps to shift all operations to 
"paperless" transactions. 
 
U.S. GOVERNMENT ASSISTANCE 
-------------------------- 
¶16.  (U) The U.S. Government's Millennium Challenge Corporation's 
(MCC) Threshold Program in the Philippines, managed by USAID, 
assists the Ombudsman in strengthening its anti-corruption efforts 
in a number of ways.  First, it has helped improve the abilities of 
staff to investigate and prosecute corruption cases through training 
in substantive law, investigation and prosecution skills, legal 
writing and research, and case preparation.  The project has also 
improved the Ombudsman's information technology capabilities by 
developing a sound connectivity plan, improving office processes in 
preparation for automation, and deploying a World Bank-funded case 
management system.  The MCC program has also provided assistance in 
the areas of investigation and surveillance.  Finally, it has helped 
inform school curricula by providing teaching materials on 
corruption. 
 
¶17.  (U) The MCC Threshold Program is also working to strengthen and 
institutionalize anti-corruption programs.  Almost 1,000 government 
officials have been trained under the program, with some training 
provided by U.S. agencies such as the Internal Revenue Service, the 
Federal Bureau of Investigation and the U.S. Department of Justice. 
The information technology component will enable all 115 district 
Offices of the Philippine Bureau of Internal Revenue to be brought 
on-line, and will automate the human resource records of its 11,000 
employees.  Finally, the MCC Threshold Program is engaging civil 
society in the fight against corruption by supporting the 
Multi-Sectoral Anti-Corruption Council and various focus groups that 
act as watchdogs to prevent corruption in government.  The USG is 
also providing advisory assistance to the Philippine Anti-Money 
Laundering Council, which is investigating seven corruption cases 
involving P1.4 billion. 
 
MANILA 00003669  004.4 OF 004 
 
 
 
¶18.  (U) USAID assists the Sandiganbayan to increase the court's 
efficiency and reduce delay.  USAID helped the Sandiganbayan develop 
a computerized case management information system, making it easier 
for Sandiganbayan justices and their staff to track the status of 
cases and identify those that are overdue or require timelier 
attention.  USAID also has assisted Sandiganbayan justices in 
improving their courtroom management and enabling them, for the 
first time, to conduct continuous trials, which has produced 
encouraging results.  Justices reported that processes such as the 
presentation of prosecution evidence took only a week under 
continuous trial, as opposed to almost a year under a piecemeal 
trial. 
 
¶19.  (U) Hearing the testimony of witnesses over several successive 
days (rather than several months of infrequent appearances) has 
increased judicial ability to gauge the reliability of witnesses and 
rule effectively.  Moreover, with the prospect of dilatory tactics 
eliminated, the accused in almost half (22) of the 54 pilot cases 
selected for continuous trial opted to enter plea agreements, 
effectively concluding their cases.  With the success of the pilot 
test, the Sandiganbayan's presiding justice is now considering 
full-blown implementation of continuous trial for all cases 
beginning in 2008. 
 
¶20.  (SBU) The USG is also providing case-specific assistance to the 
Ombudsman.  An example is the prosecution of Carlos Garcia, a former 
Major General and Comptroller of the Army of the Philippines, for 
using his position to obtain over approximately P375 million through 
false billing of Army contracts and kickbacks from contractors.  The 
Ombudsman's Special Prosecutor considers the Garcia and Estrada 
cases as important examples that the rule of law can reach both 
high-ranking civil and military officials.  The USG is providing the 
testimony of DHS-ICE agents and physical evidence to support the 
charge of plunder. 
 
COMMENT 
------- 
¶21.  (SBU) Tackling corruption remains a central challenge to good 
governance in the Philippines and ensuring broad-based economic 
growth.  Corruption is also a deterrent to foreign investment, 
particularly in terms of providing a level playing field for 
investors and especially for U.S. companies that must comply with 
the Foreign Corrupt Practices Act.  The good news is that there is a 
widening recognition of the problem in the Philippines and 
increasing groundswell of support to address the issue. Similarly, 
there are new efforts underway by the government to address key 
corruption issues and to strengthen those institutions most critical 
to anti-corruption efforts, including the Office of the Ombudsman, 
the Bureau of Internal Revenue, the Bureau of Customs, and the 
judiciary.  To demonstrate its seriousness in fighting corruption, 
the Philippine government has disbursed one billion pesos to various 
government agencies for this effort.  While no one expects the 
corruption problem to disappear in the short-term, the Philippine 
government is beginning to make real strides towards that goal. 
 
Visit Embassy Manila's Classified SIPRNET website: 
http://www.state.sgov.gov/p/eap/manila/index. cfm 
 
You can also access this site through the State Department's 
Classified SIPRNET website: http://www.state.sgov.gov 
 
KENNEY