15/10/2016 Talking Business


15/10/2016

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Malaysia's one MD scandal has blown open the discussion around

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This region is home to some of the fastest-growing economies in the

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world, but also some of the most corrupt.

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What are the challenges facing those who were trying to

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battle corruption here and some of the solutions they're coming up

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Welcome to Talking Business. I'm in Malaysia, a country involved in a

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large corruption scandal. At the centre of it is One MDB. The

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allegation is that billions of dollars of funds were siphoned from

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One MDB by those running it in the used it as the own personal bank

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account. The Prime Minister has denied wrongdoing frustration has

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been brewing on the streets of Malaysia. Mostly contained, but

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persistent. Just over a month ago, students in its capital city Kuala

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Lumpur gathered to call for Malaysia Prime Minister -- for the Prime

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Minister to step down. A precursor to a larger rally called by civil

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society groups. These students say he has disgraced the country by

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being involved in high level corruption at 1MDB. The whole world

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knows about problems in our country and 1MDB has bought problems to our

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country, so why should we be silent, as if we are oppressed? There is

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possibly nothing that shows how in trench to corruption is in Malaysia

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more than Najib Razak. Najib Razak set it up in 2009. In 2015 it was

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revealed that the were financial irregularities. At least $3.5

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billion of public money had been stolen. Most of that has gone to

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Najib Razak's associates. However, he has said it was a donation from

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the Saudi royal family, allowed on the Malaysia in law, most of it has

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been returned. That is a parliament are behind in, 100%... More

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importantly, he and his ministers have stressed there is no proof of

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his involvement. The Prime Minister has made it clear from the beginning

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that we welcomed the investigation by the Department of Justice and if

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there are any crimes committed, those people will be dealt with

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according to the law, but as it is right now there is no indication, or

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there is no judgment at all, whether in Malaysia or the International

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Court, that says these issues have criminal elements to them. Yes, we

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have some issues with the proper governance of 1MDB. That is why two

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years ago the Prime Minister decided to have a new CEO of 1MDB and revamp

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and have a proper strategised policy to revitalise 1MDB. So you accept

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there were some issues of corporate governance at 1MDB? Even if the

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Prime Minister wasn't directly involved, he has been named, but as

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the leader of a country, this mass corruption taking place under his

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watch, shouldn't he stepped up and resign? I didn't think so. As it is

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right now, we know that 1MDB operates on its own. The Prime

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Minister is the head of the advisory council, but 1MDB has its own

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corporate structure. Decisions are made at the bottom level and then

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brought to the Prime Minister. What is important is that the Prime

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Minister has a plan to rationalise 1MDB. Remember this, we are talking

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about a few billion, but if 1MDB is allowed some space, some latitude,

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the land they are going to develop will generate approximately 172

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billion worth of great value. Give them time and at a business level it

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will be resolved. But none of that really explains what the sovereign

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fund is being investigated by at least half a dozen countries,

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including the United States, Switzerland and Singapore. And how

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this was all allowed to go on for so long, grow so big and climbs so high

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in the power chain in the first place. This is where the Ministry of

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Finance, the Palace of Justice and the Prime Minister's office sits.

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It's the heart of government in Malaysia were all the big decisions

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are made, but the political landscape is shifting and the

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opposition is gathering pace. The former Prime Minister has set up a

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new political party to challenge the current administration, but critics

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said he would Malaysia for more than 20 years with an iron fist from the

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late 1980s and much of what he is trying to challenge today flourished

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under his watch. As far as corruption is concerned, do I have

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cases like 1MDB where people accuse me of stealing money? Until now,

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after I resigned, when the people who took over against me, they

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couldn't find anything against me. If they could, by now I will be in

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jail. With all due respect, sir, you are saying to me, show me the proof

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I have done something wrong, then I can talk about it. But isn't that

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what the Prime Minister is saying? He's saying I haven't done anything

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wrong, so show me the proof then I will respond it. The proof can only

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be found outside the country. All these charges made by outside the

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country, all the reports about him, this was possible because within the

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country, no one is allowed to speak on this issue. His own party was

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instructed not to talk about 1MDB, or the 2.6 billion in his account.

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So in the country, you can't do a thing. If it is open, if the rule of

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law is sustained, we can report about this. We have enough evidence

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to go to the courts, but you can't go to the courts. The moment you

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reports, he goes to the Attorney General and the Attorney General was

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recently appointed by him, he will always say, I've found nothing wrong

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with what Mr Najib has done. Would you accept that there was corruption

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and an abuse of power during the time you were in office? Yes.

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Corruption is found everywhere, even in Britain, even in the US. Found

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everywhere. But during my time, we didn't have corruption on this

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scale. It's described by the US as the biggest fraud and

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money-laundering that they have had. There has been corruption in my

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staff. Not me. They have not proved that I've been corrupt. What damaged

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you think this scandal from 1MDB has had on Malaysia internationally?

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Today, people laugh at Malaysia and say, what has happened to your

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country? Everywhere we go people make nasty comments about Malaysian.

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The reputation is really very bad. Only in Malaysia we have people who

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say there is nothing wrong. That is because Mr Najib controls the press.

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They cannot say anything. If you say something, you might be hauled up by

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the police, questioned and may be beaten. But that happened while you

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were in power, sir. Yes because there were reasons for it. I didn't

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catch people for no reason. They were opposed against me. Two of my

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closest leaders, senior leaders, contested against me. They lost

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during a proper election. Mr Najib doesn't allow anyone to contest

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against him. He has his deputy because -- he had his deputy sacked

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because he deputy did not agree with the management of 1MDB. During my

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time I had five or six ministers who went against me, I retain them as my

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ministers after they have doubled that. Malaysia isn't the only

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country in the region to see corruption on such a large scale.

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I've come to Jakarta, the capital of Indonesia, south-east Asia largest

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economy which has been ranked as one of the most corrupt countries in the

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world, but in recent years, global trackers of corruption have shown a

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slight improvement here. In a moment I will be speaking to a panel of

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experts who will tell me what has worked here and some of the

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solutions they see in battling corruption. But first, an

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alternative look at the situation from our comedy consultant.

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That's more like it. I've always wanted to be a Private investigator,

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like the ones in the movies, down at heel gumshoe, fighting powers around

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world. But in reality, a big issue is being investigated. This week I

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am in search of answers about corruption and businesses. Keep it

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to yourself. For businesses around the world corruption is a real

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issue. There's even an index of countries which tells you which of

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the most and least corrupt. The corruption perception index looks at

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public sector corruption in about 180 odd countries and generally the

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ones that do better of the Scandinavian countries, Singapore,

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New Zealand, and generally the ones that do worse are fragile and

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conflict or post-conflict states like North Korea, Afghanistan,

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Myanmar. Any country is susceptible to corruption and it's a mistake to

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think that others are and some aren't. It's about the robustness of

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your systems and when it takes root it is hard to eradicate. And it's

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not a victimless crime. There was a direct cost to business from

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corruption. It increases the cost of doing business by 10%. That is paid

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by the customer or eats into profits. One thing I would like to

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know more about is how does it work, this bribery and corruption

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business. Not that I'm going to be doing anything of it, of course.

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million if you're engaged or committing to pay a bribe, you

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create the finances for that from the business model, internally from

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the business? Often what we see is the use of third parties, in many

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cases, international bribery. That could be an agent working in a

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foreign jurisdiction on your behalf who would pay a bribe. You have to

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try and deflect -- deflect the finances, the funds on your behalf,

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whether in cash or not. In those cases, we see the use of corporate

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vehicles, or offshore financial centres, to try and conceal the

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movement of finances. I have got to go, I am about to crack this case

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wide open. How did you stop people who practice

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corruption from enjoying It is how we reshape cultures

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within business to ensure that the dominant narrative

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is one about ethical, socially responsible behaviour,

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and not about ensuring their objectives are met

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through bribery and corruption or The London Anticorruption Summit

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was interesting because many international treaties

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and conventions have failed They have gone to the lowest

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common denominator route. That has meant they are not

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as strong as they should be. The London Summit tried to bring

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together governments that really were serious about

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tackling corruption, It looks like investigators,

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proper ones, not me, are part of a global momentum

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to take down the bad guys. If you will excuse me,

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a new case has just come in. If you like that, you can catch

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more of his material at our website,

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bbc.com/talkingbusiness. For more on this issue,

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I am joined by a panel of experts. We have the co-founder

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of a law firm. The international board member

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for Transparency International. And the managing director

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of the American Chamber We have been talking about how

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corruption throughout south-east Asia has become

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an increasingly pervasive problem. Perhaps you can jump

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in right off the bat. In the last year, we have seen

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a massive corruption A lot of the reason for why

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that was able to get to the scale it did was money flowed within borders

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and outside of borders quite easily. How do you prevent something

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like that happening? Grand corruption cases like this,

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we see happening all We cannot get to the people

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because illicit money is being flowed through such

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complicated structures, hence we are calling for greater

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transparency of corporate This is part of the G20

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conversation also. The G20 anticorruption working group

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is really pushing for this. Disclosure of information,

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that is something we have to demand. What happened eventually

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in Malaysia, the other thing is the system

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in Malaysia is not open. It is a controlled democracy,

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semi-authoritarian. Now in the region,

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we have seen a retreat We thought Malaysia would become

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more open, it did not. Thailand is under a military

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government for the Myanmar, better, things are moving

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ahead, but it remains to be seen Is the region going to go the way

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of Malaysia and Thailand, That openness, I think,

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in a more open system, I do not believe 1MDB

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could have happened. The political fallout in this

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country, in Indonesia, against a scandal of that

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magnitude would be so great It is not just a matter of having

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to deal with international financial systems, we have

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to work with the lawyers, the gatekeepers, the financial

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analysts, the lawyers, there are so many ways

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that the illicit gains We need to work together,

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international cooperation What are the sorts of changes that

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can be made in terms of regulations to make them more stringent

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about catching these things we have discussed, but they do not

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seem to be working. Malaysia has an anticorruption

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commission as well. I think we have all the regulation

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that we need, at least to get us What is still challenging

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is the implementation. The difference between Indonesia,

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the anti-corruption commission, and Malaysia, Vietnam,

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other countries, this was a truly Not answering to the president

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or the Parliament. Also, they have significant

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support from the media, which is free, and from the civil

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society organisation, which also pretty much

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have their own freedom. This combination, I think,

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is very critical, but I do not Then the government

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is expected to do more. I think they have done,

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quite a few, I will Setting up companies in Indonesia,

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a limited liability company, in the past, let's say 15 years

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ago, it takes months. Right now, pretty much

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all the processes online. You can set it up in,

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the actual setup process is, the notary will click,

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and you will get approval One other significant

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progress, the Supreme Court. In the past, it was very difficult

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for us to get the court judgements. If you were party to a dispute,

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once it is decided you If you're a lawyer, you want to be

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able to access the past decisions, There was no access

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to the court decision. The Supreme Court has

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published more than 1 million It is accessible to everyone. Having

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said that, the whole process is not just about the government making

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changes. The private sector also has a responsibility. They also have a

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role to play. We have to ensure that companies live up to the ideals of

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transparency. They, too, report their anti-corruption mechanisms,

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they report their financial Holdings, beneficial ownership. They

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report the payments they make, facilitation payments. There are

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lots of things that the private sector also needs to do in order to

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clean up. Corruption takes two to tango. It is a two-way dance. Is the

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private sector clean-up in Southeast Asia? You know who the good

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companies are in any country. There are some great companies in the

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Philippines that are pretty clean. There are some great companies here

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that are pretty clean. When you want to do business here is a foreign

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company, you need Indonesian partners. There are no shortage of

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partners. You can do good business with them. There is lots of clean-up

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going on, and it is improving. But it is a lifelong struggle. One last

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thing I would mention that I am struck by, the popularity of the

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Governor of Jakarta, and the rise of certain other district head around

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the country, we are also seeing in Indonesia, something quite

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remarkable in this reform period. Political power is deriving from

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actually providing services to your constituents. You cannot provide

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services to your constituents and be stealing the money. It does not

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work. You either provide services or steal the money. I have visited

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districts around Java where you can visibly see that this ambitious

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politician has figured out, I can rise higher by delivering services.

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Look what he did. That kind of thing, that is rewarded at the

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ballot box, and has a public dimension to it, I think that sort

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of thing will have a real impact on corruption as well. Finally, I want

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to ask you, if Indonesia, the largest economy in Southeast Asia,

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appears to be getting it right, or better, is there hope for the other

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economies in the region? Of course. If we can do it, anyone else can.

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Indonesia is so big. We are such a complex country, so diverse. If we

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can get our act in order, I do not think the other countries will have

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any problems. They can learn from us what to do and what not to do. Yes,

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I am optimistic we can get there together. Thank you so much for

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joining us for this edition of Talking Business. That is it for the

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show. Next week, Tanya Beckett will be in Brussels where she will be

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looking at the future of the European Union. Do join us then.

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Variety is the spice of life and we have had plenty of that this

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weekend. Some have had sunshine others have had wet weather. This

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was

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