Duterte’s Culture of Corruption

One could be forgiven for thinking Filipino President Rodrigo Duterte’s glib approach to his country’s systemic struggles with crime and corruption had already plumbed the depths of indecency, but his latest comments on the legacy of Ferdinand Marcos demonstrate his willingness to rewrite one of the most sordid chapters of Filipino history.

Addressing his failures to tackle corruption during an event last month, Duterte claimed the country’s constitution was to blame, stunningly insisting the Philippines needs to return to the time of a dictator whose time in power was marked by cronyism, nepotism, and kleptocracy on an industrial scale.

This is not the first time Duterte has expressed his admiration for Marcos, who he reinterred with a hero’s burial in 2016. Since Marcos came to power in 1972, the Philippines has endured a culture of official graft through the eras of Gloria Macapagal-Arroyo and Joker Arroyo, Joseph Estrada, and now Duterte. Even the populist president’s well-publicized housecleaning of corrupt officials ended with at least seven being rehired and reassigned to different departments.

Rhetoric aside, the Philippines’ political landscape remains on a fundamentally unsound trajectory, with rampant corruption undermining both investor confidence and the public’s faith in the government’s ability to fight graft and corruption.

Before Duterte took office in 2016, the Philippines ranked 95th of 180 countries on the Transparency International’s annual corruption index. By 2017, the country had dropped still further to 111th. The US State Department also identifies the Philippines as a “major money laundering country” in its International Narcotics Control Strategy report, one of 87 nations “whose financial institutions engage in currency transactions involving significant amounts of proceeds from international narcotics trafficking.”

Like Marcos, Duterte’s tolerance for corruption is best observed in the cronyism re-emerging under his watch. One Duterte ally in particular, Davao-based businessman Dennis Uy, has done especially well for himself since his hometown mayor won the presidency. Under Duterte, Uy’s companies have embarked on a flurry of acquisitions. Before 2016, Dennis Uy owned 11 companies. By the start of this year, he had bought 36 more, with his Udenna Corporation’s assets ballooning from PHP44.1 billion (US$858 million) to PHP134.2 billion (US$2.61 billion) in just one year.

Uy’s spokespeople have pushed back on allegations that the tycoon has Duterte to thank for his recent successes, but Uy himself has called Duterte a “mentor in life [and] in leadership.” Uy has parlayed his ties with the president into major deals with foreign investors. For example, Udenna and its subsidiary Chelsea Logistics took over telecom provider Mislatel in a major consortium deal with China Telecom signed in April.

Dennis Uy’s whirlwind dealings have implicated him in at least one major corruption scandal, with consequences going far beyond Manila. One of Udenna’s largest transactions to date was a US$1 billion deal in 2017 with the Kuwait-based KGL Investment (KGLI) for the Global Gateway Development Corporation (GGDC) and its Clark Freeport Zone. Before that, Udenna had also acquired a company called 2GO from KGLI for US$120 million. While the GGDC deal has not drawn much attention in the Philippines, it set off a firestorm and a years-long investigation targeting KGL in Kuwait.

After the 2017 deal between Udenna and KGLI, two top executives at the Kuwaiti firm – Russian-born Marsha Lazareva and Saeed Dashti – were arrested on charges of embezzlement, while a $496 million transfer from the BDO Unibank in the Philippines to the account of KGLI’s private equity Port Fund was frozen on suspicions of money laundering.

The question Kuwaiti prosecutors and parliamentarians both have been asking is where Dennis Uy’s money has gone. Marsha Lazareva claimed the GGDC sale to Uy had been for just US$380 million, but given the Kuwaiti port and pension funds invested US$200 million in the Port Fund, allegations the KGL bosses underreported the proceeds of the sale and pocketed the rest have provoked a public outcry.

To make matters worse, KGL was previously accused of money laundering: early last year, US Sen. Marco Rubio demanded an investigation into the company, pointing to accusations the Kuwaiti firm – a US government contractor – did business with sanctioned Iranian companies, violating stringent sanctions against the Islamic Republic.

To fight the most recent charges, KGL has opened its checkbook to put together an extremely high-profile defense team for Marsha Lazareva and Saeed Dashti, hiring everyone from Neil Bush (son of George H.W. Bush) to former FBI director Louis Freeh to discredit the case and accuse the Kuwaiti judiciary of misconduct. While Dennis Uy’s involvement has largely skirted under the radar, the question remains: did the country’s anti-corruption mechanisms do their job to prevent misuse of the Philippines’ banking system?

While the jury is (literally) still out on Marsha Lazareva and Saeed Dashti, Filipino banks certainly have a serious problem with money laundering, as Asia Sentinel reported on May 30. According to the Anti-Money Laundering Council (AMLC) report, the equivalent of US$342.3 billion of illicit money was channelled through the Philippines’ banking system between January 2013 and December 2017.

In February 2016, a now-infamous wire transfer heist saw US$81 million pass from Bangladesh’s central bank to four fictitious accounts at the Filipino lender Rizal Commercial Banking Corporation. The funds were sent to RCBC by three major international banks, before being laundered through local casinos. Only $18 million has been recovered, and cases against RCBC executives are still ongoing.

Between the continuing failure of Filipino banks to stop the flow of dirty money through their accounts, and the willingness of Rodrigo Duterte to let his political allies buy up major segments of the national economy, it is abundantly clear that Manila is ignoring the World Bank’s recommendations for a clear national anti-corruption strategy. While the Bank argues for an approach that reduces opportunities and motivations for corruption, Rodrigo Duterte doesn’t seem concerned with the serious moral and political vacuum for democratic governance in the Philippines. In fact, he seems more inclined to do away with democracy entirely.

James W. Borton is a faculty associate at the Walker Institute at the University of South Carolina and is a contributing foreign correspondent for several publications.