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Laos - Corruption

Laos is rated 154 out of 178 countries on Transparency Internationals corruption perception index. Generally, the government tends to deal with serious corruption problems by forcing corrupt officials to retire or move to a new position. Besides bribes to low-level officials for the purpose of expediting time-sensitive applications, such as business licenses, importation of perishable items, customs, etc., anecdotal evidence of more pervasive corruption is growing.

Officials often engaged in corrupt practices with impunity. Wages of all government officials were extremely low, and many officials, such as police, had broad powers that they could easily abuse. Many police officers used their authority to extract bribes from citizens. Some judges reportedly could be bribed. Corrupt officials reportedly were seldom punished. Police were trained at the National Police Academy, but the extent to which the academys curriculum covered corruption was unknown.

Both giving and accepting bribes are criminal acts punishable by fine and/or imprisonment. The law provides criminal penalties for official corruption, but the government did not implement the law effectively, and corruption continued to be a serious problem. The Prime Ministers Office has made combating corruption a priority, including issuance of an anticorruption decree in November 1999, but corruption remains a problem. Although the 1999 decree specifically notes the responsibility of the state-owned mass media in publicizing corruption cases, there has been no reporting on this issue. In 2005, an anti-corruption law was passed by the National Assembly, and in September 2009, Laos ratified the United Nations Convention Against Corruption. Laos is not a signatory to the OECD Convention on Combating Bribery.

According to the State Inspection Authority, the Lao Government has prosecuted some individuals for corruption but it cannot publicize the information. The State Inspection Authority, located in the Prime Ministers Office, is charged with analyzing corruption at the national level and serves as a central office for gathering details and evidence of suspected corruption. Additionally, the State Inspection Department in each Ministry is responsible for a ministrys internal problems.

In theory the Government Inspection and Anticorruption Committee, which was established in June 2011, carries authority equal to a government ministry and has responsibility for uncovering corruption in all government ministries, including the Ministry of Public Security. Authorities arrested and administratively punished lower-level officials on occasion for corruption. There were no reports of criminal cases brought to trial. The government-controlled press rarely reported cases of official corruption.

Central and provincial inspection organizations responsible for enforcing laws against corruption lacked defined roles and sufficient powers as well as adequate funding, equipment, and legal support from the government.

Prior to taking their designated positions, senior officials were required by party policy to disclose their personal assets to the LPRPs Party Inspection Committee. The committee inspects the officials assets before and after the officials have been in their positions. However, the LPRP used its control of government authorities and media to block public censure of corrupt officials who were party members.

The Government of Laos is now willing to confront the reality of corruption in Laos, something it was totally unprepared to do in the past. A number of observers have noted that several years ago government officials would not discuss corruption, but this attitude has changed markedly. Senior Politburo members have now begun to address the problem in an open and public forum. The Government of Laos keynote speaker for the December 2006 commemoration of the International Day against Corruption was Deputy Prime Minister Ansang Laoly, an ironic choice given his well-established reputation for corrupt activities. Throughout the Lao bureaucracy, only revenue and customs officials still seem reticent to acknowledge that corruption remains a problem, perhaps because doing so would directly threaten their own pocketbook.

The Government of Laos is taking action against senior officials implicated in corruption. At the 8th Party Congress in March, 2006, the Communist Party Central Committee forced out several governors and former governors accused of corruption. Both the Minister of Agriculture and the Minister of Industry and Handicrafts were sacked for the same reason. The Foreign Minister stated at a press conference following the Congress that some former Central Committee members had been involved in corruption and narcotics trafficking, but that this would no longer be tolerated. The Congress also increased the power of the Party Inspection Authority, headed by Deputy PM Ansang Laoly, to act proactively to preclude corruption within the party's senior ranks. Those removed from the Party's Central Committee, however, were not subsequently prosecuted for their offenses; the Government of Laos prefers to transfer errant officials to less prestigious (and lucrative) positions rather than send them to jail.

At the policy level, the Government of Laos perceives corruption as a major impediment to development that could help to derail its stated goal of graduating from least-developed country (LDC) status by 2020. Fortunately the Government of Laos has a good implementing vehicle to help bring about the type of fundamental changes it needs in its National Socio-Economic Development Plan for 2006-2010. The plan calls for the Government of Laos to make fighting corruption a priority, establish the organizations and legal framework it needs to control corruption, and enforce anti-corruption statutes vigorously. International pressure, from the United Nations Development Program (UNDP), the World Bank, and possibly Vietnam, has given added impetus to Lao anti-corruption efforts.

In May of 2005, the Lao National Assembly adopted an anti-corruption statute. The law moved Laos toward full compliance with the 2003 United Nations Convention against Corruption, which the Government of Laos signed in December of 2003. Under the new law, acts that constitute corruption are: -Embezzlement of state property or collective property -Swindling of state property or collective property -Taking bribes -Abuse of position, power, and duty to take state property, collective property or individual property -Abuse of state property or collective property -Excessive use of position to take state property, collective property or individual property -Cheating or falsification relating to technical construction standards, designs, and calculations -Deception in bidding or concessions -Forging documents or using forged documents -Disclosure of state secrets for personal benefit -Holding back or delaying documents

Among other things, the law specifically called for an end to nepotism, senior official asset declarations, and the establishment of a national anti-corruption organization with similar bodies at the provincial level. However, the law itself is sparse and clearly in need of detailed implementing regulations, a common problem for the Government of Laos, which lacks the resources and expertise required to produce the comprehensive legal structures it needs to support its policies. The law also establishes severe penalties, ranging up to 25 years imprisonment, for serious violations. These enforcement provisions are in addition to existing laws that cover some but not all of the violations listed in the new statute.

One reason that the Government of Laos has been ineffective in curbing corruption is its inability to exert influence over the actions of provincial governments. Following passage of the anti-corruption law, there were major efforts to educate provincial officials. Although in theory the Lao state is highly centralized, in fact the central government has traditionally been weak in comparison to the provinces. The majority of revenues are collected by the provincial governments, which provide only a portion of what they take in to support the national government in Vientiane. Obviously, this does not give the Government of Laos much leverage over the provincial governors. The revenue structure made the implementation of national policies difficult and allowed the provinces to impede national initiatives promoting transparency and discouraging corruption.

Fortunately, the budget law passed in December 2006 was designed to correct some of this imbalance by centralizing revenue management through consolidated tax operations. In addition, Laos will introduce a national value added tax (VAT) designed to replace customs revenues being phased out as part of bilateral and regional free-trade initiatives. The VAT is also intended to reduce the opportunities for corruption within the customs collection system. In theory, all revenues will now come to the central government before they are reallocated to the provinces; however, provincial governments will remain responsible for implementing the new tax codes, and significant challenges will have to be overcome if the system is to function as intended. In practice, provincial governments are likely to continue holding substantial non-declared assets, and the national government will likely remain unable to rein in corruption in the provinces. Both the new budget law and the VAT are awaiting implementing regulations yet to be completed.

Laos' larger and more visible neighbors have generally garnered more attention with regard to corruption, but, on closer examination, the depth of corruption in Laos may be just as bad. Transparency International, in its 2006 report, rated Laos notably worse than the year before. The World Bank Institute's Kaufmann-Kraay corruption measurement identified Laos as more corrupt than Thailand, China, and Vietnam, and only slightly better than Cambodia. Of the multiple reasons for this, the woefully insufficient pay of civil servants tops the list. The absence of transparency or any effective check on authority, intrinsic to a one-party Communist state, presents a serious challenge even to estimating the extent of corruption. The Government of Laos relies on donor support for much of its budget, and, as most of this assistance is not tied to good governance, there is little incentive for reform. Finally, a large and increasing portion of GDP is derived from resource extraction industries, which are especially vulnerable to corruption because the national government lacks adequate means to effectively regulate them and their products are difficult to trace.

Low pay for civil servants is a critical problem, and Laos is near the low end globally. Salaries for physicians remain in the range of $120-$150 per month. To receive care in government health care facilities, which include most of the major hospitals in Laos, patients must give supplemental cash to the doctors and nurses who care for them. Police officers are paid even less; junior officer's monthly salary is approximately $20. Laos, however, does not have the lowest cost of living in the region, and private labor costs are non-competitive with China and Vietnam. To even approach the remuneration available in the private sector, civil servant pay would have to be increased by a factor of ten to twenty. As civil servants cannot possibly survive on their salaries, many government officials see no problem with receiving commissions, which they perceive as nothing more than gratuities similar to what waiters might receive in the U.S.; they do not see themselves as engaging in a corrupt practice.

The Lao People's Democratic Republic, as a single-party communist state, is by its very nature resistant to transparency and accountability. Decision-making authority is centralized, and, absent an opposition party or any effective check on the Communist Party's power, senior leaders generally do as they please. Nepotism is rampant. Ironically, a number of rich and powerful families in the pre-1975 monarchy have continued to thrive under communism. There is strong resistance to audit systems, and many local governments have financial controls on expenditures but not on revenues, creating ample opportunity for the diversion of public funds. In general, there is no sense among Party officials that there is anything significantly wrong with corruption, though a few stalwarts still hold to the socialist ideals of their youth.

While Laos has a legal basis to prosecute corruption, and state-sanctioned organizations to root it out, few government officials would be foolhardy enough to take on the senior Party members who benefit the most from the current system. There has been no recent high-profile anti-corruption case against a Communist Party figure in Laos, unlike those which have occurred in China and Vietnam. Enforcement of the Anti-Corruption Law for anything other than relatively minor offenses by the most junior officials is next to impossible. The lack of judicial independence would make the prosecution of a major case even more problematic. The September 2005 arrest of a major Chinese drug trafficker in Houaphan illustrates how daunting corruption can be. Han Yongwan was arrested only after the Government of Laos came under intense pressure from China, Burma and Thailand. Provincial officials were very slow to move on this case, and even the Governor may have had a hand in protecting this prominent organized crime figure. Lao military officials were also implicated. The drug lord was extradited to China via Burma, as Laos would have been an uncertain venue at best for the trial.

The construction of the new National Stadium in Vientiane is an example of how the Anti-Corruption Law exists on paper only. The law specifically forbids the use of authority to take individual property. However, Vientiane Municipality used its power of eminent domain to seize small parcels of privately-held land fronting Route 13, the major north-south highway in Laos, for the construction of a stadium and auxiliary facilities it will need to host the Southeast Asia Games in 2009. These tracts, optimally sited for commercial development, commanded premium values when their former owners purchased them.

When the landowners requested compensation from the Municipality, officials responded that, while they sympathized with the owners, no budget had been set aside for the purchase of the stadium land and, consequently, no compensation could be offered other than comparably-sized plots in the rural countryside. Valuable private land seized for public use following the Communist takeover in 1975 was sometimes used by senior officials for their own estates, and the memory of the past abuses makes the recently-displaced landowners skeptical about who will really benefit from the land they surrendered to the Vientiane authorities.

A direct consequence of decades of abuse of power is that there is no public trust; government officials are presumed to be corrupt unless proven otherwise. There is also no mitigating indigenous civil society or strong private sector to serve as an independent but unthreatening impetus for reform. The government is drafting legislation to regulate civil society and NGOs, providing some official sanction; the few civil society institutions and NGOs that exist in Laos continue to rely on a core of expatriate experts rather than civic-minded Lao. There is ongoing dialogue between the Lao Bar Association and some donors, but, with fewer than 100 practicing attorneys in Laos, the influence of this organization is limited.

In many cases, donor activities do as much to facilitate corruption as they do to promote good governance. A substantial portion of the Government of Laos's budget comes directly from aid programs provided by foreign governments, international organizations, and NGOs. Overseas development assistance (ODA) flows in Laos are not transparent; much of the assistance provided is expended on high-end SUVs and study tours for senior officials rather than reaching the masses of rural poor who need it most. Management by objective is sorely lacking, and there is strong resistance to procurement reforms. Corruption is not the consequence of ODA; that problem runs much deeper in Lao society. But many donors are not doing what they could to promote transparency.

A major donor's roundtable meeting held in Vientiane in November 2006 was a lost opportunity to tie ODA to greater transparency and better governance. One major reason for this is that some of the largest donors to Laos, such as Japan, China, and Vietnam, are focused more on their bilateral relationships with the Government of Laos than on the efficacy of their programs. As the Japanese representative at the World Bank discussions stated, "Japan is not in a position to link ODA to governance . . . but expects the World Bank to assume responsibility for pursuing this objective in Laos." Unspoken but clearly communicated at the World Bank meeting was the message that, as long as Japan feels it necessary to continue a bidding war with China for the good will of the communist leadership, governance reform in Laos will not be a priority. The Japanese representative read from a prepared statement with little enthusiasm. When the NAS spoke with her about the size of Japanese ODA in Laos, she stated that Japan contributed $80 million to Laos in 2006, seven to eight times the U.S. contribution. She then remarked, "but you have results to show for what the U.S. has put in," implying that Japan got little in return for its generosity.

Corruption in Laos is not confined to the public sector. Depositors must still pay banks to make withdrawals larger than a few hundred dollars. According to figures presented at the World Bank meeting, construction kickbacks normally run about 10%. Corruption in the mining sector is rife; and China in particular has been able to exploit the weakness of the Government of Laos's regulatory system. Corruption in the logging industry is also rampant, Vietnamese concerns operating near the Lao-Vietnamese border being effectively exempt from even the minimal attempts at enforcement found elsewhere (ref G). Siene Saphanthong, the former Minister of Agriculture, was transferred because he failed to control corruption in the timber industry, but not prosecuted Corruption in resource extraction industries is likely to get worse as the importance of this sector to the Lao economy grows. Mining and hydropower, which currently account for approximately 50% of GDP, will grow to 70% by the end of the decade, and potentially 90% of GDP when these industries are fully developed. Further complicating this problem is the very close relationship between the private sector and the Government of Laos.

Although corruption is a severe problem in Laos, the situation is not entirely bleak. The Government of Laos has highlighted the problem of corruption since 1999, when it issued its first decree directed at this problem, something it had previously ignored. Government of Laos leaders now fear that corruption is impeding development; Laos has signed the UN Convention against Corruption and passed an anti-corruption law, demonstrating some commitment on this issue. Unfortunately, as of 2005 they had yet to publish implementing regulations or publicly prosecute anyone under the law. The Government of Laos is also taking steps to restructure its decentralized revenue system, which facilitates corruption and gives provincial governments enough independence to ignore the central government's reform initiatives.

Laos dropped significantly in a ranking of global graft, while North Korea remains the worlds most corrupt nation, according to a new report released in December 2012. Laos slipped to 160th in 2012 from 154th in 2011 and received a score of 21 in 2012 from 2.2 a year ago, the Berlin-based corruption watchdog Transparency International said in its annual Corruption Perceptions Index. The poorest Southeast Asian state has moved to step up development, but rights groups complain of government repossession of land from the people and other human rights problems, including rampant official corruption, in the one-party communist state. The index uses data from a combination of surveys and assessments of graft that look at factors such as bribery of public officials, kickbacks in public procurement, embezzlement of public funds, and effectiveness of anti-corruption efforts.





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