Corralling Corruption in the EU

THE POLITICAL and economic development of many countries is undermined by public and private sector corruption. The European Union currently includes some nations that are perceived as very corrupt and others that appear to be highly ethical. There are, however, a series of instruments and frameworks that can be adopted and instituted by European agencies and businesses to corral corruption.

Transparency International, a global coalition against corruption, is one group helping countries and businesses fight the abuse of entrusted power for private gain. The coalition publishes an annual Corruption Perception Index (CPI) Report that ranks countries according to the perception of corruption in the public sector. In the 2010 report, released late last year (the 2011 report will be released by year’s end), three-quarters of the 178 participating countries scored a five or lower on a scale where a 10 means “highly clean” of corruption and a zero is “highly corrupt.”

Last year’s CPI scores of EU member states presented both good and bad news. On the one hand, some of the highest-scoring nations were EU members. Denmark scored 9.3, followed closely by Finland and Sweden at 9.2, and the Netherlands at 8.8. However, the EU also had low scorers Hungary (4.7), the Czech Republic (4.6), Latvia (4.3), Slovakia (4.3), Italy (3.9), Romania (3.7), Bulgaria (3.6), and Greece (3.5). EU nations with a perception of corruption that increased from the previous year included the Czech Republic, Greece, Italy, and Hungary. (The United States is also among this group with an increased perception of corruption.)

The CPI report says that notable decliners of 2010 were some of the countries most affected by financial crises “precipitated by transparency and integrity deficits.” For example, Greece, where corruption is regarded as one of the major causes of a national debt crisis that is threatening the entire EU single currency system. In 2009, Transparency International reported that Greek citizens paid more than €462 million ($636 million) under the table to civil servants for such things as quick turnaround on construction permits and driver’s licenses, admission to hospitals, and tax dodging. They also paid an estimated €325 million ($447 million) in bribes to the private sector. The amount of these bribes is believed to be rising.

Transparency

Fraud is less likely when civil servants, managers, and trustees must act transparently and cannot hide their actions. The key is for those affected by administrative decisions, business transactions, or charitable work to be able to see not only the basic facts and figures associated with those actions but also the mechanisms and processes underlying them.

But transparency is only one tool. Others are set out in the United Nations Convention against Corruption (UNCAC), the only global, legally binding universal instrument that provides a framework for fighting corruption. UNCAC was born, in part, out of the recognition that there are links between “corruption and other forms of crime, in particular, organized crime and economic crime, including money laundering,” the preamble to the convention notes. UNCAC includes sections on prevention, criminalization, law enforcement matters, international cooperation, asset recovery, technical assistance, and information exchange.

When discussing the private sector, for example, UNCAC calls for enhanced accounting and auditing standards and civil, administrative, or criminal penalties for the failure to comply. It also calls for increased cooperation between law enforcement agencies and relevant private entities, and the development of standards and procedures that safeguard the integrity of these private sector organizations, including codes of conduct, prevention of conflicts of interest, and “the use of good commercial practices among businesses and in the contractual relations of business and state.” Transparency International advocates stricter implementation of UNCAC.

OLAF

Other organizations offer anticorruption strategies, too, including the European Anti-Fraud Office (OLAF), an independent investigation service of the EU, established in 1999. It looks into fraud and corruption that affect EU financial interests, plans and develops preventive and antifraud policies, and monitors the discharge of professional duties, including the dereliction of the obligations of officials and other public servants.

To make OLAF’s international anticorruption efforts more effective, the organization collaborates with Europol and Eurojust. Europol deals with serious crimes of corruption. Eurojust does not have investigative power but facilitates judicial cooperation between EU member states regarding criminal matters.

OLAF routinely investigates cases. One example involved the EU’s Common Agricultural Policy (CAP), which provides aid payments to Mediterranean banana producers. OLAF received allegations of irregularities relating to the reception, registration, accounting, and payments for bananas delivered to a producer collective. On investigating the case, OLAF found that the collective had overstated banana quantities, increasing the subsidy paid to it by about €200,000 ($275,000).

Publicizing Payments

Another effective anticorruption-through-transparency campaign is Publish What You Pay (PWYP). This international coalition of 280 nongovernmental organizations (NGOs) applies pressure on international companies to publish what they pay in taxes, bonuses, fees, and other amounts to the governments of mineral-rich countries. In the EU, participating countries include France, Norway, Belgium, the Czech Republic, Germany, Ireland, the Netherlands, Spain, Switzerland, and the United Kingdom.

Crinis

Another area of potential corruption is the EU political system. One successful antifraud and anticorruption initiative is the Crinis Project, a joint project of Transparency International and the Carter Center. Crinis focuses on transparency, which is increased by reporting financial accounts related to campaign contributions to an EU nation’s election management body (EMB), as well as on public disclosure. Field interviews are conducted by the Crinis Project with key political actors, including political party accountants, elected politicians, electoral judges, watchdog groups, EMB auditors, and businesspeople to identify areas in need of reform.

The results of the Crinis Project are given to the participating country, and Transparency International then uses the information to work with government institutions, political parties, potential candidates, and donors to advocate for reform and increased transparency.

Other organizations that work to prevent corrupt behaviors pertaining to political influence include the World Bank, which has several anticorruption initiatives that are outlined in the Governance and Anticorruption Implementation Plan of 2007, and the World Economic Forum, which has partnered with the International Chamber of Commerce, Transparency International, and the UN Global Compact in the Partnering Against Corruption Initiative. This initiative calls for zero tolerance of bribery and the development of practical and effective implementation programs, as well as the curtailment of political contributions by businesses and their employees or intermediaries; the transparency of all contributions and sponsorships to charities; the elimination of facilitation payments; and the prohibition of gifts, hospitality, or expense coverage whenever these might affect—or be perceived to affect—the outcome of a procurement or business transaction.

While corruption can never be eliminated completely, all of these efforts combined can help to keep it from becoming endemic.

Uwe Klapproth, CFE, is external lecturer of white-collar crime and corruption at Graz University of Technology, Graz, Austria. He has written several published articles focusing on fighting corruption and was on the team of the KPMG Fraud Survey 2010 in Germany. He has served as police detective in the field of white-collar crime.

Ann Longmore-Etheridge is an associate editor at Security Management and editor of ASIS Dynamics.