Fighting corruption in an enlarged EU: How to remedy it?

Fighting corruption in an enlarged EU: How to remedy
it?

An EPC-Transparency International Dialogue was
held on 28 October 2002, on “Fighting Corruption in an Enlarged EU:
How to remedy it?” Panel one consisted of Miklos Marschall,
Executive Director of Transparency International, Hilde Hardeman,
of the European Commission’s Directorate General for Enlargement
and Viorel Ardeleanu, Deputy Head of the Romanian Mission. Panel
two included Nicola Ehlermann-Cache, of the OECD and Georg Brodach,
Senior Vice President of ABB Europe Limited. Eberhard Rhein, EPC
Senior Policy Adviser acted as chairman. A question and answer
session followed. This is not an official record of the proceedings
and specific remarks are not necessarily attributable.

Background

EU enlargement will inevitably increase the need
for measures to tackle corruption – but the applicant countries are
not as far behind the current 15 in a “Corruption league table” as
many think. Greece actually has a worse record than one or two of
the newcomers. But corruption, in public administration and the
private sector is now a global problem and needs global solutions,
the panellists agreed.

Panel One

Miklos Marschall, Executive Director of
Transparency International, an NGO fighting corruption, said the
problem was all about “abuse of entrusted power for private gain.”
Corruption undermined good governance and cracking it required
nothing less than a global coalition. Corruption hit at the most
deep-rooted values and standards in society and the rule of law and
the quality of life were in danger, if the pillars of national
integrity crumbled.

He referred to Transparency International’s
latest annual “Corruption Perceptions Index”, ranking countries in
order that corruption is perceived by ordinary people and the
business community. This year it ranks 102 countries, drawing on 15
surveys and nine independent institutions for its figures, and it
identifies Finland as the least corrupt and Bangladesh as the most
corrupt.

The accession countries still have “severe”
problems to work on in the area of corruption, said Mr Marschall,
but many were not as bad as expected. Estonia, for instance,
Slovenia, Hungary, and Lithuania all ranked higher than one current
EU Member State – Greece. More serious problems persisted in
Poland, the Czech Republic and Slovakia. This annual “snapshot” of
corruption has been take since 1996, and it was necessary to
distinguish between two types of corruption:

– “Inherited” corruption, which arises from the
“shortage economy”, in which virtually nothing is available. This
aspect is slowly decreasing as nations’ wealth improves.

– “Grand” corruption”, which is the result of
economic and political transition, often related to moves towards
privatisation.

The lessons to be drawn from the corruption
surveys are strikingly simple, said Mr Marschall: there is a
positive correlation between GDP growth and structural reforms. For
instance, countries managing to liberalise their economies are much
better off than those with either no reforms or those only half way
along the reform process.

There is also a correlation between
privatisation and democracy: the privatised economy supports
democracy, because economic and political pluralism go hand in
hand. The obvious point, therefore, is that one way to curb
corruption is to try to decrease state ownership in the economy –
not something many politicians want to listen to. There is also a
correlation between democracy and market reforms, and there are
dividends when politicians have the courage to introduce
comprehensive reforms and risk unpopularity.

These stirrings are evident in many accession
countries, including the Baltic States, Hungary and Poland, but
there is also a negative correlation betw een privatisation and
corruption. Less privatisation leads to less democracy, which leads
to higher corruption in many countries.

For Mr Marschall these points are so evident
that it is puzzling that they are ignored by the political elites
in transition economies in the former Soviet Union countries. But
it was not just about addressing corruption in the accession
countries. The international business community had a
responsibility as well, as was clearly demonstrated by the TI’s
“bribe-payers’ index”, measuring the perceived corruption of some
exporting countries.

Some of the EU members are “not so clean”,
according to the figures, said Mr Marschall. Companies in France,
Spain and Germany are more likely to offer bribes to win business
in that country than companies in Singapore, Canada, or in
Australia, which is ranked as the least “bribable” country in the
survey.

Hilde Hardeman, of the European Commission’s
Directorate General for Enlargement, spoke of the EU contribution
to tackling corruption during the accession process. She said the
qualifying basic principles for accession were market economies,
democracy, the rule of law – and that included getting a grip on
corruption, an issue that the Commission had been monitoring
closely in all the accession states since 1997. It involved wide
consultation, detailed discussions with each candidate country, and
it was not enough for these applicant states to promise
anti-corruption legislation: until the moment of accession, every
commitment was being checked.

Viorel Ardeleanu, Deputy Head of the Romanian
Mission explained how his country was facing up to corruption. He
said it was a priority in Romania, and a National Plan for the
prevention of Corruption had been adopted a year ago. Special
departments of the police, the prosecutor’s office and the Ministry
of Justice had been set up to deal with corruption and a new law on
the prevention, detection and punishment of corruption offences had
been ratified by the Romanian Parliament in 2000. The National
Anti-Corruption Prosecutor’s Office, with 15 branches across the
country, was just now investigating its first cases, having started
work in September.

New international legal instruments had also
been transposed into Romanian legislation, including the Council of
Europe’s Civil Law Convention on Corruption. Although corruption
was seen in Romania as a problem, it was not seen as systemic, or
as “part of the culture.”

A key element in the national battle was low
wage levels in the state sector, which was being tackled, but so
far, anti-corruption progress on this and other issues in Romania
was not yet reflected in the TI index.

The latest figures were actually worse now than
when the index started, but Mr Ardeleanu insisted that there had
been real progress – there was no change yet in perceptions of the
problem. He acknowledged, however, that, Romania still had a lot to
do.

Discussion

The problem was raised of pre-accession
governments making pledges in business dealings, which are then
ignored by a subsequent administration.

Mrs Hardeman said the EU did keep an eye on the
way regimes honoured their commitments, while Mr Marschall said a
lack of political maturity in political systems and political
elites allowed newly elected governments to ignore what previous
governments had contracted to do. There should be EU pressure
because this level of “irresponsibility” on the part of some
politicians amounted to a disregard for the basic rule of law.

Asked about the impact of the accession process
on the pressure to reform corruption, Mr Marschall acknowledged
that – in the short term only – more democracy could actually
create more corruption. He cited the case of Belarus, which fared
much better in the TI corruption league table than Russia, simply
because the Belarus regime is so authoritarian and opp ressive it
leaves no scope for business or private corruption. But market
reforms were very important and the simple truth was that in a
market economy, democracy would do more to deal with corruption
than promotional campaigns ever will. Corruption, said Mr
Marschall, has two enemies – naivety (politicians who think they
can cure it) and cynicism (politicians who think it cannot be
cured).

Representatives of accession countries in the
audience were invited by the chairman to comment, and a speaker
from Turkey acknowledged that there might be more corruption in
Turkey now than two years ago because of economic difficulties.

A representative from Bulgaria pointed out that
his country was more or less in the middle of the corruption
ratings and was moving upwards. He said in Bulgaria the problem of
corruption was not at the top of people’s concerns, but there was
clearly a link between corruption and poverty.

Mr Marschall said he was optimistic about the
chances of pulling the accession countries out of corruption:
twelve years of transition had shown that, in spite of many “horror
stories”, there had been obvious developments, and the gap between
the accession states and the current members on corruption was
still narrowing.

Mr Ardeleanu said that, in contrast to Bulgaria,
corruption was still a big public issue in Romania: indeed, it had
been a key factor in the last three general elections. But the
lines were sometimes blurred and there were fewer and fewer cases
of “pure” corruption – such as running off with the company money
for personal benefit. The question increasingly was: what is
corruption and what is bad management?

On the role of the press, Mr Ardeleanu said
Romania had a crusading press, which was tough and readily
criticised the government, but Mr Marschall observed a new problem
in central Europe: the press was now largely privatised and some
newspaper owners did good tax break deals with governments and were
now hesitant about open criticism of the regimes that supported
them. This inevitably curbed media independence, and the press
generally was not up to the job of exposing corruption stories – or
if it was, it lacked the resources for investigative journalism. In
some cases, laws still intimidate the media from producing stories,
said Mr Ardeleanu, and this was a growing problem, which had to be
addressed.

Panel Two

Nicola Ehlermann-Cache, of the OECD, then
launched a second panel, describing the EPC event as a very
valuable initiative bringing civil society and business together on
an issue, which touched them all. She said that until recently,
offering bribes to foreign officials was the normal way of doing
business in many parts of the world. This could be via crude cash
payoffs or via favourable tax treatment, but over the last ten
years there had been a sea change. Everyone was now trying to
address the issue of bribery and many countries had laws forbidding
it. Bribery was a criminal act and all the EU accession countries
had to adopt the same anti-bribery laws as the current Member
States.

But she questioned whether that would be enough.
Globalisation now made it virtually impossible to deal with bribery
on a national basis. Common rules were needed and in the EU, the
Convention was looking at the issue of the corruption of EU
officials. In the OECD, standards had been developed, addressing
large-scale bribery in international business transactions.
Criminalisation was essential, but the “holistic” approach was also
one of the OECD’s instruments.

One key OECD tool is the Convention On Combating
Bribery of Foreign Public Officials in International Business
Transactions. This has been in effect since 1999 and has been
ratified by 34 countries, including all OECD states, and all EU
nations except Ireland. Under the Convention, it is a crime for any
person to bride a public official in any other state.

But again, this level of international
cooperation may not be sufficient: “We think this is only the
beginning, and in the very near future all EU and accession
countries must implement fully the anti-bribery instruments and
must effectively enforce the law’ said Mrs Ehlerman-Cache.

The EU had adopted preventive measures but these
were only the foundations. Solid structures were needed, and public
servants had to become fully aware of what needed doing and a new
environment was needed in which business and governments could work
together, with the right resources to enforce the law. Beyond that,
global cooperation was required and the OECD was in touch with the
private sector as well as civil society. The goal was to increase
awareness of the damage corruption does, and end long-term
“destabilisation.”

Georg Brodach, Senior Vice President of ABB
Europe Limited, gave the business community view, pointing out that
there were almost as many different views on corruption as there
were businesses. Some were pushing for ethical businesses for
sustainability, but others, including some in the developing world
and in the accession countries, were just “cowboys who take risks
and don’t care about ethics.”

He warned that it would take half a generation
for a nation such as Nigeria – currently ranked second worst after
Bangladesh – to make progress up the Corruption Perceptions Index,
and it would be a few years before a country such as Romania moved
up the ladder.

But league tables could be too simplistic, and
Mr Brodach raised the question of how Finland’s top ranking would
be affected in the case of a Bangladeshi working for a Finnish
company engaging in corruption in, for example, Russia. Corruption
was cross-border rather than neatly national and reality was more
complex than the league table showed. The problem was that people
would always find their way round new rules, so heavy regulation
was not the answer. The real answer was a change in behaviour and
attitudes.

He cited his own company, a big engineering
company that suffered, as did all others from a certain amount of
corruption. ABB had pulled out of countries where it became
apparent that business could only be done corruptly with public
administrations. It had also broken ties with other companies
clearly dealing in a corrupt fashion.  

ABB was a Swiss-Swedish company, and, on the
basis of the index, is little prone to corruption. However the
company had been through bad times and judicial proceedings.
Corrupt employees were fired as soon as they were uncovered, but,
as elsewhere, there were always others.

His conclusion was that “if you want to be
credible and ethical and in business for a long time, there must be
no doubt about your own behaviour.” This was true for politicians,
civil servants and the private sector. The legal process was, of
course, a help in tackling corruption, but it was not making a big
difference – change had to come from within.

Mr Brodach suggested using public money to set
up a black list of people “who don’t behave” – a scoreboard to
“blame and shame” those who are caught. For the future, more
ethical business training was required, with common business
standards being applied. And whistle-blowing, which Mr Brodach was
against “in a personal environment”, should be encouraged when
tackling corporate corruption.

WTO and corruption

Mr Brodach felt the WTO should play a part in
tackling the problem, as a spin-off from WTO-level discussions on
good governance and democracy.

He was challenged about his “blacklist”, but
rejected a suggestion that blacklisting firms and naming them in
public even before a court case has taken place outside the rule of
law. He was clear that there should be sanctions even before a
court case. The problem, said Mr Brodach, was that any form of
bribery was a loss to the country in w hich it occurred – a loss
both to productive industry and the community.

For more analyses, visit the

EPC website.

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