The European Commission published a report this week detailing the extent of corruption within EU Member States which was described as “breathtaking” by EU Commissioner Cecilia Malmstrom.  The report estimated that corruption costs the EU economy EUR 120 billion per year, a little less than the European Union’s annual budget.

The Report provides an analysis of corruption within the EU’s Member States and of the steps taken to prevent and combat it. Its overall purpose is to instigate debate involving the EU Commission, Member States and the European Parliament as well as other stakeholders to identify ways in which the fight against corruption can be improved in Europe.

The report was as frank as it was damning. It reached the following conclusions:

  • Whilst most EU Member States have the necessary legal instruments and institutions to fight corruption, the results they deliver are not satisfactory. There is a lack of vigorous enforcement and a lack of capacity within institutions, with the genuine political will needed to eradicate corruption often appearing missing. 
  • Unsurprisingly, it reported that public procurement is particularly prone to corruption owing to deficient control mechanisms and risk management.
  •  Codes of conduct within political parties or elected assemblies at central or local level are the exception rather than the rule.
  • Financing of political parties remains a concern – GRECO evaluations and compliance with GRECO recommendations is encouraged. Finland is held up as the poster child for good practice adopting all recommendations made by GRECO in 2010.
  • Asset disclosure for officials is valued and ensures accountability, transparency and facilitates detection of potential cases of illicit enrichment. However, in some Member States the bodies in charge of monitoring asset disclosures have limited powers and tools to implement and enforce the rules. There are few examples of thorough verification by Member States.
  • Conflicts of Interest in decision-making, allocation of public funds, and public procurement particularly at local level form a recurrent pattern in many Member States.
  •  The efficiency of law enforcement and prosecution in investigating corruption varies widely across the EU. Particular concerns are highlighted within the judiciary for which independence and integrity are crucial in ensuring justice. Particular concerns have been raised in some countries regarding the exposure of courts, and prosecution services, to political interference on corruption cases.
  •  The report highlighted that some sectors seemed to be more vulnerable to corruption than others, including urban development and construction, environmental planning, healthcare and tax administration.
  •  The report flagged the need to revisit the lack of access to information on beneficial ownership and the use of sophisticated multi-jurisdictional corporate structures in grand corruption cases.
  •  Worryingly, the report highlighted once again the links between organised crime and corruption, including flagging the existence of one Member State where organised crime exercises influence “at all levels” including in politics. 

The EU Commission’s country-specific report on the UK was overall positive:

  •  The Bribery Act was once again held up as the high watermark for anti-bribery legislation, exceeding the requirements of the OECD’s Anti-Bribery Convention. But the report indicates that there needs to be a more systematic approach to streamline corruption reporting channels and to raise public awareness of their existence. As we reported in October 2013 the SFO’s ‘Confidential Hotline’ launched in November 2011 triggered over 5,000 referrals up until June 2013 but none of these led to a formal investigation or prosecution. This suggests the referrals were of a quality that did not identify complex economic crime, and that better ways to encourage whistle-blowing needs to be identified.
  • Encouragingly, opinion polling in the UK revealed the lowest percentage of respondents across Europe who have been asked or expected to pay a bribe in the previous 12 months (0%). The Eurobarometer business survey revealed that 15% of respondents considered corruption to be a problem for their company when doing business in the UK (EU average 43%) and 46% thought corruption was widespread (EU average 75%).
  • The report encouraged greater coordination between the various law enforcement agencies tasked with investigating corruption through the umbrella of the National Crime Agency’s new economic crimes unit. Greater cooperation was a recommendation made in Transparency International UK’s recent report recommending legislative and policy changes to improve the recovery of the fruits of corruption. The Commission’s report did not touch upon the lack of major prosecutions under the Bribery Act to date, perhaps reflecting the fact that the legislation is still in its infancy. But it did refer to the OECD’s concern that the SFO is under-funded and under-resourced, pointing to the 40% decrease in its budget since 2008-2009. It continues to remain a disappointment to many that the UK has the gold standard in international anti-bribery legislation and yet does not allocate the resources to ensure it is vigorously enforced.
  • The report specifically flagged the vulnerability of the UK’s defence sector to corruption. The report also targeted the financial sector and issued a reminder about the 2012 FSA report which found that investment banks had inadequate measures in place to prevent bribery and corruption, and that senior managers were not sufficiently knowledgeable about the law.
  • The report reiterated UNCAC’s recommendation that the UK considers expanding its current system of declarations of interests to a system of asset declarations. The UK should certainly be seen to be leading by example in this crucial area which can assist in the detection and prosecution of illicit enrichment.

The Report also touched upon improvements that can be made to the UK’s lobbying rules, police-media relations following the Leveson Inquiry and political donations, and made three over-arching recommendations for the UK:

  •  Further preventative measures should be adopted to address the risk of foreign bribery and to provide sector-specific guidance to companies that work in high risk areas, such as defence. It added that any out-of-court settlements, such as through deferred prosecution agreements, should be transparent and ultimately be seen to act as a deterrent.
  • There should be a further strengthening of accountability of governance in banks including stricter enforcement. The report also noted the UK’s decision to have a public register of beneficial ownership. But it was disappointing that the EU Commission was not brave enough to expressly laud this approach and encourage other Member States to follow suit.
  • Capping donations to political parties, imposing limits on electoral campaign spending and ensuring proactive monitoring and prosecution of potential violations.

Ms Malmstrom was right to comment that there is no “corruption-free zone in Europe” and that “the price of not acting is simply too high." The report is welcome in one respect in highlighting that no EU Member State can be complacent in the fight against corruption. However, the media has been keen to highlight allegations that the EU Commission took the decision to drop a section of the report dealing with the integrity of EU institutions. Perhaps the EU Commission should follow its own recommendation in the report that building a culture of integrity requires the setting of “a firm tone from the top in relation to integrity issues”. It would be unsatisfactory for some Member States to only give lip service to the EU Commission report and its findings pointing to the fact that the European Union has yet to get its own house in order, including one day ensuring that the EU’s Court of Auditors can sign off the EU accounts, hopefully at the 20th time of asking.