Blogging on Issues of International and European Security

Is corruption holding Europe back?

by Saara Ilmonen

The European Policy Centre (EPC) and Transparency International (TI) organised an event “Is corruption holding Europe back? Lessons from the first EU anti-corruption report” to mark the publication of the report produced by the European Commission outlining the most significant corruption issues in Europe and explaining the situation in each of the EU’s 28 member states. The panel consisting of Commissioner for Home Affairs Cecilia Malmström, Carl Dolan (IT), Lambros Patsiavelas (Permanent Representation of Greece to the EU), Sergejus Muravjovas (TI-Lithuania) and Hendrik Bourgeois (The American Chamber of Commerce to the EU) discussed the contents of the report, and evaluated what the next steps should be.

Anti-corruption measures are fundamental, as corruption reduces public trust in politics, institutions and even democracy; it undermines the rule of law and distorts economic competition. Corruption costs around 120 billion euros a year to the EU. Differences within corruption level between countries make the playing field uneven. There is a need for a comprehensive strategy to address corruption and Ukraine can be used as an example of possible devastating impact of corruption.

The report recognises that the member states have taken measures to address corruption but a lot remains to be done as no EU country is free of corruption. It is important to engage both the civil society and the private sector in these efforts. The report includes a specific implementation agenda; more transparency is required in party and elections funding, and conflicts of interest of politicians should be made public. Anti-corruption bodies, judiciary and police must maintain their independence. Many EU member states already have necessary laws and institutions in place and there is increased interest, both by the public and media, in corruption. However, the implementation and enforcement of different anti-corruption measures still takes work.

While discussing the content of the report itself, Carl Dolan (TI) appreciated the inclusion of corruption in public procurement and conflicts of interest present in politics but brought up certain significant omissions, such as corruption cases in EU institutions themselves, as well as corruption linked to cross-border activities. Commissioner Malmström stated that the inclusion of  European institutions in the report was considered, but it was later abandoned as it appeared to be difficult to impartially evaluate their own efforts.

Public procurement is extremely prone to corruption and it is a significant issue within the EU as 15% of EU GDP is spent on it. An estimated 10-25% of public contracts’ value is lost to corruption with large-scale contracts being the most vulnerable ones. Cooperation and coordination are needed for laws to work in practice and for enforcement to take place. Incentives for illegal action have to be eliminated and there is a need to cooperate with third countries, international organisations and NGOs, in addition to cooperation among EU member states.

Conflicts of interest are not always fully understood or reported, and often, the politicians themselves are unsure whether about how to deal with them correctly. Acknowledging the problem is the first step and now the work can be done to figure out what actions need to be taken. The level of pay is linked to bribery, but it is difficult to determine how much public officials, such as police officers, should be paid to prevent bribery.

There are systemic failures, such as conflicts of interest between politicians and business that breed corruption. Corruption is holding Europe back from better economic performance, and high unemployment, slow growth and low investment levels are all to an extent influenced by corrupt economic practices. It easy to understand why corruption is wrong ethically and morally but it is important to remember that in a market economy, it is bad for business. Increasing profits is important for business but it should not be done short-sightedly with any means possible because that easily leads to the abandonment of long-term values for short-term benefits. Rule of law is often weak if corruption is high. High corruption appears as often as weak rule of law which sends a signal of things going wrong and discourages investments. Corruption has led to a number of missed opportunities that would have been needed in the current economic situation. Consequences of corruption include violation costs in a form of ban from public procurement, reputational impacts, loss of business benefits from competition and loss of transparency. Anti-corruption laws are in place but there is no sufficient enforcement.

One of the questions from the audience concerned differences in corruption and anti-corruption culture between Europe and the United States. In general, implementation and enforcement of corruption legislation is higher in the US with efficient use of the carrot and stick approach. The punishments for corruption are relatively harsh, such as large fines or jail sentences to discourage it. In the US, many companies also have internal whistle-blower programmes which are absent within the EU. The EU has made progress but the US is still ahead. However, this has also been helped by differences in economic structures. In Europe, SMEs, which are prone to corruption, are much more common than in the US.

The blacklisting of companies for corruption is a sensitive issue and the current system in the EU is not functioning well. Global companies often have several legal entities which often make it possible for them to work around repercussions, such as bans on participating in public procurement. There should exist a real threat before actual blacklisting. Currently a few companies are actually convicted and, thus, cannot be put on the blacklist. But hesitation on blacklisting is also required to allow companies to self-clean, for instance of acquisition of companies with corrupt practices.

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This entry was posted on 07/03/2014 by in Conferences, Contributors, Saara Ilmonen and tagged , , .

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