The bulging envelope: Europe's corruption challenge

Corruption costs the EU economy a massive €120 billion every year. Ray Furlong investigates its impact on organisations doing business across Europe.

Corruption costs the EU economy a massive &#x;120 billion every year. Ray Furlong investigates its impact on organisations doing business across EuropeThe European Commission recently published its first-ever continent-wide survey of corruption, and it was not a pretty sight. &#x;Europeans are deeply worried about corruption &#x; Eurobarometer survey results show that three-quarters (76 per cent) of Europeans think that corruption is widespread,&#x; it said. But the report comes after 15 years of concentrated international anti-corruption efforts. So how bad is the situation really?German television viewers have been gaining some unwelcome insights into corruption in Greece this winter &#x; unwelcome because the alleged villains of the piece are German companies.A series of reports on Frontal21, a respected investigative programme on public-service ZDF television, has included interviews with three Greek men claiming German arms companies paid millions of euros in bribes &#x; in order to win contracts worth billions.One of them, a local representative in Greece for three German arms companies, describes a meeting with another of the men, a Greek military officer.&#x;He asked me, what do I get out of the deal? We could also buy French or American arms,&#x; he says, adding that, when he asked the headquarters in Germany what to do, he was simply told to negotiate over the size of his bribe.The officer later described being handed a rucksack containing 600,000 euros in cash.The three German companies have all denied any wrongdoing. But German prosecutors are now also investigating. The three men apparently told their stories to Greek state prosecutors in the hope of receiving milder sentences.Bribe-takers &#x; and bribe-makers The case is not an isolated incident, and the rot has gone almost to the top. Last autumn, the former Greek Defence Minister, Akis Tsochatzopoulos, was sentenced to 20 years in prison for taking 55 million euros in bribes connected to contracts for Russian missile systems and German submarines.But it&#x;s not only the bribe-takers who get punished. In 2012, industrial services provider Ferrostaal was fined 140 million euros for illegal payments connected to submarine contracts in Greece and Portugal. Two Ferrostaal executives received two-year suspended sentences; the judges said their leniency was due to the two men&#x;s admissions and their advanced age (they were both 73). The damage to the company&#x;s reputation is harder to quantify.Siemens had to work for years to repair the damage to its image after revelations in 2006 that it had paid hundreds of millions in bribes to win contracts. Among the measures it introduced were hiring 500 compliance officers, setting up compliance hotlines, employing senior figures from Interpol and Transparency International, launching a huge education programme for its staff, setting up a dedicated compliance website with an external ombudsman, and announcing that it would pull out of certain particularly corrupt countries altogether.Cases like these illustrate that, in many places, expectations of a backhander are alive and well. It&#x;s a conclusion shared by the European Commission&#x;s recent report on corruption.&#x;Many countries around the world suffer from deep-rooted corruption that hampers economic development, undermines democracy, and damages social justice and the rule of law. The Member States of the EU are not immune to this reality,&#x; it states.&#x;Corruption varies in nature and extent from one country to another, but it affects all Member States. It impinges on good governance, sound management of public money, and competitive markets. In extreme cases, it undermines the trust of citizens in democratic institutions and processes.&#x;Corruption endemic What the report describes is a deeply embedded culture of corruption in a number of countries, particularly in Southern and Eastern Europe.A survey of businesses found, for example, that around a third of companies (32 per cent) complained that corruption had prevented them from winning public contracts. This was particularly true in the construction and engineering sectors, and especially widespread in Bulgaria, Slovakia, Cyprus and the Czech Republic.A survey of the general public&#x;s perception was also telling. An astounding 99 per cent of Greeks, 97 per cent of Italians, and 95 per cent of Spaniards and Czechs said corruption in their countries had got worse over the last three years.Answers suggested the least corrupt societies were in Denmark, Finland and Luxembourg.In Britain, less than 1 per cent of people said they&#x;d been expected to pay a bribe, the lowest figure in Europe. But 64 per cent said corruption was widespread in the UK (compared to an EU average of 76 per cent).This may seem like a contradiction. But it&#x;s worth bearing in mind that the term &#x;corruption&#x; can cover a multitude of sins. &#x;Europe&#x;s problem is not so much with small bribes on the whole,&#x; says Carl Dolan, from Transparency International, in Brussels. &#x;It&#x;s with the ties between the political class and industry&#x; The rewards for favouring companies, in allocating contracts or making changes to legislation, are positions in the private sector when they have left office, rather than a bribe.&#x;Stopping the rot But there is an alternative to this dark narrative of rampant corruption. There have been significant legal and cultural changes over the past two decades which suggest things may actually be getting better.One of the most important is the Anti-Bribery Convention adopted in 1999 by the Organisation for Economic Co-operation and Development (OECD).&#x;There definitely has been an impact &#x; for example, the prosecution of Siemens in Germany was made possible by Germany&#x;s legislation to implement the Convention,&#x; says governance consultant Quentin Reed, who sits on the EU Group of Experts on Corruption.&#x;The impact in the UK is also clear. The OECD openly condemned the UK for halting the BAE Systems prosecution over alleged bribery in Saudi Arabia, and this was the trigger for a change in direction by the UK culminating in the 2010 Bribery Act, which is very stringent, and there have already been prosecutions of UK companies abroad.&#x;Mr Reed also points to the importance of the US Foreign Corrupt Practices Act (FCPA).&#x;It was the first of its kind and was one of the main reasons for lobbying for the Convention, because US companies felt at a disadvantage. US authorities may have become more active in prosecuting foreign companies because of the generally more favourable international environment for such prosecutions as a result of the Convention. For example, mutual legal assistance is much easier for them to get if the country where one of their companies is bribing has similar legislation.&#x;But in the US, there is still heated debate about whether US firms are disadvantaged by the FCPA. In 2011, Lisa Rickard, head of the US Chamber of Commerce&#x;s institute for legal reform, wrote that the FCPA was &#x;hurting American businesses&#x; ability to compete fairly in the global market&#x;. It remains one of the leading voices calling for &#x;reform&#x; of the Act.And in Europe, willingness to enforce the OECD Convention varies wildly. According to euobserver.com, only Denmark, Germany, Italy, Norway, Switzerland and the UK have ten or more cases under investigation.Levelling the playing field Speaking at an event marking the 15th anniversary of the Convention, OECD Secretary-General Angel Gurr&#x;a complained that some countries had stopped investigations, citing &#x;national interest&#x;.&#x;This depends very much on the political will of authorities and leaders. I find myself surprised when I write to a particular foreign minister or prime minister and then I go on an official visit and I see that everybody&#x;s terribly pissed off with me. I ask, why is everyone so angry? And they say, because you wrote that we weren&#x;t doing enough, and I say, well, you&#x;re not.&#x;Clive Fowler, a retired international oil executive, also says there is not a level playing field.&#x;There are companies with whom British and American companies compete which are not subject to the same constraints on corruption. It&#x;s going to be an ever-present issue when some countries have a reputation for being soft on corruption,&#x; he says.&#x;I can think of at least one occasion where I was asked for something that was blatantly at odds with the FCPA. I said no and reported it back to my boss, and we withdrew from the negotiations and lost the deal.&#x;But the OECD Convention has now been signed by 40 countries, with Columbia and Russia the latest to join.And Angel Gurr&#x;a says the growing international consensus is helping to change things for the better. &#x;Twenty years ago, in many countries, bribing a foreign public official was business as usual. In some jurisdictions, bribes were not considered bad. They were actually tax-deductible!&#x;Clearly the increased threat of legal action is now something companies have to take seriously, and this has fed down into corporate culture.Laraine Nee has worked in HR global mobility for 25 years. &#x;The rules on behaviour, on how to influence people, or even being influenced, even when it comes down to something as basic as being taken out to dinner, are now a lot clearer,&#x; she says.&#x;It&#x;s easier for people at my level to get advice, to raise topics quite confidentially. So it&#x;s got a lot clearer in the Western world, but I don&#x;t know how other countries are operating.&#x;There will always be voices in the business world that say that those adhering to high ethical standards are at a disadvantage when competing in certain countries, against particular rivals. Perhaps for this reason, corruption scandals like the ones currently being played out in Germany are not a thing of the past. But positive change has happened &#x; and is continuing.&#x;Ray Furlong presents The Newsroom on the BBC World Service and contributes weekly to re:locatemagazine.comWhat is your experience of corruption, and how is it impacting on the growth of your business? With corruption and compliance issues high up on the agenda, what can be done to provide practical solutions?Discuss with Ray Furlong and other experts the challenges of doing business in Europe, Russia and further afield. Join the conversations on our new social media website at: candgglobal.com