“Anti-Corruption System in the National Defense Sector SavedKRW 16.9 Billion Defense Budget”

ACRC to promote the spread of corruption risks control system to prevent and curb corruption in defense facilities contracts in cooperation with the Ministry of National Defense

□ The ‘Corruption Risks Control System in the National Defense Facility Construction Contract’ developed by the Ministry of National Defense was selected as the most outstanding anti-corruption policy initiative at the ‘2017 Anti-Corruption Policy Initiative Award’ held by the Anti-Corruption and Civil Rights Commission (ACRC, Chairperson Pak Un Jong) on December 12, 2017. Out of 820 anti-corruption policy initiatives submitted by government agencies of various levels for nominations for the 2017 Anti-Corruption Policy Initiative Award, 10 initiatives assessed as excellent anti-corruption initiatives in terms of policy efficiency and diffusability made into the finals, and 5 initiatives including that of the Ministry of National Defense won the commendation from the Chairperson of the ACRC.

※ Awardees of the commendation from the Chairperson of the ACRC: the Ministry of National Defense, the Fair Trade Commission, Gyeongsangnam-do Office of Education, the Korea Expressway Corporation, Korea Rail Network Authority (please refer to the press release dated Dec. 13, 2017)

□ The Ministry of National Defense (the “MND”) holds a great significance in the field of anti-corruption and integrity-building. As a government agency in charge of the national security with over 600,000 military personnel, the MND has jurisdiction over a vast range of affairs, including the national defense policy formulation, operation of armed forces, procurement, facility construction or installations, and welfare services, which are even referred to as ‘another government.’ The MND budget amounts to KRW 43.2 trillion, accounting for 10% of the 2018 government budget. However, the MND received the third grade, an average level of integrity, in the 2017 integrity assessment conducted by the ACRC, and on top of this, corruption scandals have been continuously arising, so the MND is perceived as an agency that needs to make much more anti-corruption and integrity-building efforts. Under this circumstance, the MND’s voluntary operation of the corruption risks control system in the area of national defense facility construction or installation contract, which is highly vulnerable to corruption due to trillions of budget poured into it, drew a lot of attention.

□ The content of the initiative developed by the Armed Forces Financial Management Corps (the “AFFMC”) exclusively responsible for the affairs related to contracts, such as those for the construction or installations of facilities within the MND, is very clear and simple. Having diagnosed that the cause of corruption lies in the collusion with a person in charge at a construction or installation company and the information asymmetry, etc., the AFFMC came up with 9 types of checklists and 21 cases of frequent errors so as to pre-check and manage corruption risk factors in areas with a high risk of corruption, such as facility services, facility construction, design change, and price fluctuations. The core function of the initiative is to provide the design or construction/installation company and the person in charge with guidelines, thereby enabling the person, who has been newly assigned to the post responsible for the facility design or construction/installation and thus does not thoroughly understand the task assigned to him/her, to deal with the task in spite of his/her imperfect knowledge related thereto.

□ For instance, in case where the cost of construction/installation increases due to a change in design, the AFFMC analyses what could have caused such increase in construction/installation costs, including omissions in the initial draft of a facility design or deliberate bloating of construction/installation costs, and then it requests the relevant military corps to examine the accuracy of the analysis. Moreover, the AFFMC categorized what needs to be checked during the course of work, including in case where a request for modification contracts is made, whether a construction/installation company has gained fraudulent profits through applying false rate of completion progress.

※ Types of frequent errors: facility services (4 cases), facility construction (4 cases), design change (10 cases), price fluctuations (3 cases)

※ Checklist: facility services (3 types), facility construction (4 types), design change (1 type), price fluctuations (1 type)

□ In order to better communicate with persons in charge of the work concerned, the MND provided itinerant training courses on cases of frequent errors and checklists for major military units such as the Defense Installations Agency (DIA), MND USFK Base Relocation Office, the Naval Logistics Command (NLC), etc. 14 times during nine months. In addition, by type and corps, the AFFMC tallied up and analyzed cases of frequent errors identified as corruption-causing factors in detailed statements of facility construction/installations for which it received requests throughout the year, and disseminated the result of such analysis to all military corps on a quarterly basis.

□ The corruption risks control system reduced the rate of frequent errors (i.e. corruption-causing factors) to 59% in the fourth quarter of 2017 from 113% in 2016 when this system was not introduced, ultimately resulting in saving a total of KRW 16.9 billion defense budget

□ A Navy Captain Shim Tae Ho of the AFFMC, who played a leading role in introducing the initiative, remarked that “in the past, there were a lot of criticisms of Korean armed forces from the public due to corruption in defense acquisition program, etc. and the integrity level was lower than that of other ministries, however, we are now trying to let people know that we have been making voluntary efforts to change ourselves and also made public the checklists and corruption risks control system, thereby enabling our military personnel to discharge their duties in a more transparent manner under the system, without regard to relationships based on region, academic background, and work. The initiative made it possible for us to prevent corruption and a waste of taxpayers’ money.”

An official from the ACRC stated that “under the anti-corruption initiative developed by the MND, corruption-prone areas within the organization are identified and improved in a voluntary manner, and thus it can prevent the leakage of national fiscal resources. The ACRC will continue to closely monitor the outcomes of the initiative, work together with the MND to diffuse the initiative to other public institutions with a high proportion of construction contracts, and cooperate with the UNDP in promoting Korea’s anti-corruption efforts to other countries.”