POTUS Walks ASEAN's Mean Streets

President Obama meets tomorrow on Bali, Indonesia with the heads of state from ASEAN -- the Association of Southeast Asian Nations.

ASEAN hasn't been effective in spreading free trade and investment across the region. A big obstacle is corruption. Although the group includes Singapore, ranked as the least corrupt country in the world on the CPI, it also includes some of the planet's most corrupt nations.

Even with Singapore, the average CPI rank for ASEAN's ten members is 101, dragged down by Cambodia (154), Laos (154), and Myanmar (176), which managed to beat only Somalia. 

On the President's agenda in Bali will be 'improving economic integration and addressing security challenges in the region.' Both start with fighting corruption.

Here are the ASEAN countries in order of their CPI ranking:

Singapore (1)

Brunei  (38)

Malaysia (56)

Thailand (78)

Indonesia (110)

Vietnam (116)

Philippines (134)

Cambodia (154)

Laos (154)

Myanmar (176)

Take Your Meds

In its quarterly report filed with the SEC last week, pharma giant Pfizer Inc said it has reached agreement in principle with the SEC and DOJ to resolve 'improper payment' matters outside the United States.

It expects final settlements by year end.

In 2009, New York-based Pfizer paid a $2.3 billion civil and criminal penalty for unlawful prescription drug promotions in the U.S. As we said then, using similar sales techniques with doctors at government-owned hospitals overseas could violate the FCPA.

That same year, a senator in the Philippines accused Pfizer of using illegal tactics to block legislation aimed at lowering drug costs. Senator Mar Roxas wrote a letter to the U.S. Justice Department requesting an FCPA investigation. He alleged that Pfizer offered the Philippines' health secretary 'discount cards' in exchange for not implementing the retail drug-price law.

Pfizer then bought full-page ads in Philippines newspapers saying, 'We categorically deny this allegation and consider this a grave affront to our reputation … We have always sought to provide wider access to our high quality medicines.'

In a post last month, a flock of pharmas, a reader asked why our 2011 corporate investigations list is full of pharmaceutical and medical-device companies. Those on the list were AstraZeneca, Biomet, Bio-Rad Laboratories, Bristol-Meyers Squibb, Covidien, Eli Lilly, GlaxoSmithKline, Medtronic, Merck, Orthofix International, Pfizer, Sciclone Pharmaceuticals, Smith & Nephew, Stryker Corporation, Talecris Biotherapeutics, and Zimmer.

We said,

Their sales practices for a long time involved (and may still involve) payments of some sort to doctors, in exchange for recommendations for their products or actual sales. Because doctors overseas who work in government owned or managed hospitals are considered to be 'foreign officials' under the Foreign Corrupt Practices Act, those payments may create offenses under the U.S. law.

Will Pfizer's settlement with the DOJ and SEC open the industry floodgates? It could. As we've said, when the feds can bring in for questioning multiple companies from a single industry, usually at least one is willing to squeal on the others in exchange for leniency. 

Pfizer Inc is the world's biggest research-based drug company. It has about 110,000 employees and  revenue last year was $69 billion. It acquired Wyeth in 2009.

It trades on the NYSE under the symbol PFE.

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Pfizer Inc's complete disclosure regarding the potential SEC and DOJ settlements from its Form 10-Q filed on November 10, 2011 (pdf) said,

The Company has voluntarily provided the DOJ and the U.S. Securities and Exchange Commission (SEC) with information concerning potentially improper payments made by certain Pfizer and Wyeth subsidiaries in connection with certain sales activities outside the U.S. In recent discussions, we have reached agreements-in-principle with the SEC staff and with the DOJ for the resolution of these matters. We anticipate entering into and announcing final agreements in the fourth quarter. In addition, certain potentially improper payments and other matters are the subject of investigations by government authorities in certain foreign countries, including a civil and criminal investigation in Germany with respect to certain tax matters relating to a wholly owned subsidiary of Pfizer.

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Our thanks to Josh, who asked for some coverage of Pfizer and last week's disclosure.

Journalists Killed For Covering Graft

More than half the journalists murdered in the line of duty were working to expose corruption.

"Murder, after all, is the ultimate form of censorship," wrote Robert Mahoney, deputy director of the Committee to Protect Journalists (CPJ).

In a story that first appeared in The Media magazine and is now available here, Mahoney said 44 journalists were killed last year as a direct result of their work, eight of them in Africa, and 145 were thrown in prison.

Since 1992, the CPJ reports 861 journalists killed in the line of duty. The 10 deadliest countries have been:

Iraq: 149
Philippines: 71
Algeria: 60
Russia: 52
Colombia: 43
Pakistan: 35
Somalia: 34
India: 27
Mexico: 25
Afghanistan: 22

Editors, Mahoney said, are usually afraid to write about the big fish in corruption stories, so they tackle the small fry.

But not always.

"Only a few courageous writers progress far up the chain to the political and business elites who cream off a country’s wealth," Mahoney said. "Among them are editor Abdou Latif Coulibaly, who has taken on Senegal’s elite, exposing corruption in a US$200 million government deal for a telecom licence. He is now facing three separate criminal defamation lawsuits."

Graft And Political Risk

Muammar Abu Minyar al-Gaddafi, also known as Colonel Gaddafi, leader of Libya since 1969. Photo by James GordonPredicting what leaders will fall from power is never easy, even for the pros ("Who lost Iran?).

But a quick test for stability is to check how long the leader has hung on, and how corrupt his or her country is perceived to be by the rest of the world. Although inexact, it can provide clues about what might happen.

The test works because corrupt rulers always become unpopular. To stay in power, they become increasingly repressive. Eventually the cork may blow. President Kennedy put it more eloquently: Those who make peaceful revolution impossible will make violent revolution inevitable.

Recent events in Tunisia are an example. The people rose up against President Ben Ali and pushed him and his greedy family out. He'd been in office since 1987 and his country had a ranking on the corruption perception index of 59 -- higher than most Tunisians probably thought their country deserved.

A WikiLeaks diplomatic cable from June 2008 written by the American ambassador to Tunisia, Robert F. Godec -- classified as secret, to be declassified in 2018 -- made the link between the country's long-time ruler, corruption, and political risk:

[C]orruption in Tunisia is getting worse. Whether it's cash, services, land, property, or yes, even your yacht, President Ben Ali's family is rumored to covet it and reportedly gets what it wants. Beyond the stories of the First Family's shady dealings, Tunisians report encountering low-level corruption as well in interactions with the police, customs, and a variety of government ministries. The economic impact is clear, with Tunisian investors -- fearing the long-arm of "the Family" -- forgoing new investments, keeping domestic investment rates low and unemployment high. These persistent rumors of corruption, coupled with rising inflation and continued unemployment, have helped to fuel frustration with the [government of Tunisia] and have contributed to recent protests in southwestern Tunisia. . . .

The full cable can be viewed here.

It sounded familiar. A few months after President Suharto was forced out of office in 1998 by street demonstrations across Indonesia, we wrote about an American businessman in Jakarta who'd complained for years that in any deal, one of Mr. Suharto’s kids or cronies would show up and demand a piece of the action.

Drawing out the lesson, we said it was easy to do business in the Philippines during Marcos’s time, likewise in Iran during the Shah’s or Nicaragua during Somoza’s. Foreign investors cut through the red tape by working with one of the few wired local partners, often a member of the leader's family. "Well-greased insider deals always look good at the time," we said, "but are usually too good to be true."

No one can predict a country's history before it happens, and that goes for Tunisia's neighbors. But here are some numbers to think about. In Egypt, Hosni Mubarak has been president since 1981; on the latest CPI the country ranked 98. In Libya, Mu‘ammar al-Qaḏḏāfī has been in power since 1969 and the country ranked 146 on the CPI.

Shot-Show Prosecution May Expand

As reported Friday, one of the 22 shot-show defendants, Daniel Alvirez, is expected to plead guilty soon to charges of conspiracy to violate the Foreign Corrupt Practices Act. The government's two-count superseding information alleged that he plotted to bribe defense officials in Africa and the Republic of Georgia.

What to expect now? We asked someone familiar with the evidence, who requested anonymity. Here's what he or she told us:

The government's video and audio tapes are of good quality and the confidential informant, Richard Bistrong, should be an effective witness despite some baggage. Overall, the cases appear to be strong and supported by ample evidence.

There are indications of more foreign bribery involving the military-equipment industry; the allegations in the first 16 indictments (available here) and the superseding information may be the tip of the iceberg. 

The Justice Department is seeking to build bigger cases against some current defendants. It may also indict other individuals.

Investigators could also be looking at involvement by some well-known industry leaders -- an Indian military-equipment supplier, three U.S. public companies, and two large private security contractors among them.

Countries and governments involved may include not just Georgia (mentioned in the superseding information) but also Peru, Mexico, Saudi Arabia, Guatemala, the Philippines, Colombia, and others. Representatives from some of the countries could be targeted by the Justice Department.