The settlement of USD137 million (RM413 million) by Alcatel-Lucent SA (AL) with the US Securities and Exchange Commission and the Justice Department of charges of bribery of government officials in Costa Rica, Honduras, Taiwan and Malaysia, is damaging to the image of Malaysia. There are many issues of governance and corruption to observe.

It was alleged that AL had paid bribes to employees of Telekom Malaysia Berhad (TM), a government-linked corporation (GLC) to obtain confidential information relating to a public tender for a contract worth USD85 million that AL eventually won.  

AL had paid USD200,000 and USD500,000 to two consultants but they “did not appear to render any legitimate services to Alcatel Malaysia in connection with these payments.” If these consultants did not provide legitimate services of value to AL then what type of “services” did they provide? The use of “consultants” or middlemen/ facilitators, especially in closed or negotiated tenders raises strong suspicion of corrupt practices. Many of them are RM2 companies with no relevant expertise or experience or even the resources to offer the services which they are supposed to provide.

In addition to possibly being conduits for bribes, in some cases, there are several layers of consultants and/or sub-contractors. The actual contractor doing the work gets a fraction of the contract value and middlemen/facilitators get significant portions for facilitating the contract. The consequences of such procurement practice are highly inflated prices, shoddy work, goods not delivered to specifications in quantity and quality, etc.

Although the regulators have espoused good governance especially for public listed companies (PLC) and while many have published beautifully drafted statements of good governance in their annual reports, actual measures to implement good governance may still be lacking especially in procurement. Transparency International Malaysia (TI-M) advocates a set of integrity tools that are often missing from PLC compliance measures. These are:

1. Each PLC, GLC and government-owned enterprise to make a public anti- corruption pledge similar to the pledge signed recently on 9th December, 2010 by the heads of chambers of commerce and industry/ trade associations. This pledge is a commitment to comply with a set of good business principles including the implementation of an anti-bribery policy in accordance with global standards.

Furthermore, the enterprise shall do a periodical self-assessment as to its level of compliance preferably using an independent third-party assessor and the result of which should be made public.

An IP is a legally enforceable agreement signed between both the buyer and the sellers with severe sanctions for defaults, such as termination of contract, black-listing, damages to the buyer and unsuccessful bidders. In IPs, the buyer commits not to solicit bribes and to put in place all possible measures to ensure its officials comply and the sellers commit to not paying bribes.

All commissions and other payments paid directly or indirectly by the sellers must be disclosed to the buyer. The best practice of IP requires all stages of the procurement process, including tender specifications, prequalification, appointment of consultants, tender evaluation and award, contract performance and post-contract evaluation, especially for large projects, to be monitored by an independent external monitor with the requisite integrity and relevant expertise.

For example, The upcoming MRT infrastructure project announced by the government would be an ideal candidate to implement these important measures given its magnitude, costing RM 36 billion, and will have  a direct impact on the general public.

Although regulations and governance measures may not completely eliminate fraud and corruption, TI’s experience is that the measures mentioned above together with top management setting the tone of integrity and zero tolerance of corruption, do mitigate the risk significantly. Recently, multi-billion losses of PLCs and government enterprises like those at Sime Darby Berhad and Port Klang Free Zone (PKFZ) highlight the urgent need for stronger good corporate governance. The regulators, boards of directors, CEOs, and political leaders must take heed. If not, there may be more scandals to come!

Finally, in an article that appeared in our local media entitled 'Getting corruption right', Jagdish Bhagwati, professor of economics and law at Columbia University, said, “But where substantial corruption can be unambiguously be found, as it often can, one must recognise that it is not a cultural given. On the contrary, it is the result of policies that have fed it.”

Paul Low Seng Kuan is president of Transparency International Malaysia.