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Shelter from the Coming Storm: Anti-Corruption Compliance in European Public Procurement
Tuesday, July 15, 2014

A red sky at morning is the traditional harbinger of ill weather. From our vantage point in Brussels, we’ve scanned the horizon for signs of the future of anti-bribery enforcement activity in Europe. We’ve identified four factors that are starting small, but may build into heavy seas.

In particular, there are signs that companies that sell to governments in Europe may be well advised to shore up compliance procedures so they can remain dry if a wave of anti-corruption sentiment breaks over the public procurement sector.

1.     Corruption Reports: The Issue Surfaces

In February 2014, the European Commission published its first detailed report on public corruption in the EU. The European Commission Anti-Corruption Report states that corruption may be adding 20-25% to the cost of public procurement in Europe. The Report describes corruption vulnerabilities generally, but it is vaguely worded in an apparent effort not to disparage any particular country. Importantly, it appears that the Commission omitted any specific reporting on corruption within EU institutions. In fact, a “29th Chapter” on European Government corruption was reportedly drafted, but was later dropped from the final version of the report.

Shortly thereafter, Transparency International, a non-governmental organization that monitors and publicizes corporate and political corruption in international development, published its own report on EU institutions. The report concludes that EU institutions generally have good policies, but that foundation is undermined by poor practices, a lack of political leadership, a failure to allocate sufficient staff and funding, and a general lack of clarity about who is governed by EU policies.

These reports bring to light a fact that may have been known to some, but is now publicly on view: corruption in Europe may be wasting public funds at the national and European levels.

2.     European Elections: Roiling the Waters of Euroskepticism

Recent European elections resulted in a marked run to the right in the European Parliament. That result will give a stronger voice to Euroskeptics who would be glad for any excuse to take European governance to task. We do not join the doomsayers who think these forces will tear the EU apart. However, we can envision corruption as an issue that the Euroskeptics may seize upon to criticize European institutions. At the same time, nearly 80% of the EU budget is managed at the national level. It is estimated that throughout Europe, nearly €120 billion (U.S. $165 billion) is lost by the member states to corruption. In the view of the skeptics, these losses may compound anger toward re-distribution of wealth from richer to poorer EU members, and fuel criticism of the domestic procurement agencies as well.

3.     Domestic Oversight: The Spreading Wave

As the Economist blogged recently, “[t]he doctrine that a country’s fiscal policy is of concern to its neighbours is expanding into the notion that its adherence to the rule of law is also the EU’s business.” We cannot better summarize the trend of the EU peering into a nation’s domestic affairs when those domestic affairs put the finances of other EU members at risk.

In fact, in 2011, when the proposed EU report on corruption was announced, the home affairs commissioner, Cecilia Malmström stated that “transparency is corruption’s worst enemy. But although Europe is considered to be relatively open and transparent from an international perspective, it is equally true that there is no corruption-free Member State in the EU.” The proposed EU report was touted as a mechanism to increase pressure on member states to deal with the problems of corruption.

4.     Trends of Corruption Enforcement: The Tidal Force

Foul weather usually comes from the West. From Europe (in the case of anti-corruption rainmaking), that stirs associations to the United States. Indeed, U.S. authorities have been very aggressive, posting an average of more than a dozen corporate enforcement actions a year under the Foreign Corrupt Practices Act.

In Europe, the storm has not built to the same force, but there are signs to be wary of. For example, the UK Serious Fraud Office reports that it is “ramping up” its intelligence capabilities and introducing new prosecutorial tools such as deferred prosecution agreements. And the Transparency International report endorses the establishment of a European Public Prosecutor whose mandate includes prosecution of serious cross-border crimes including public corruption. Such an institution may not be immediately forthcoming. It’s not a tsunami of enforcement.

But even if EU or national regulators don’t join the whirlwind of enforcement, bad press, public sentiment, and tough politics aimed against corrupt actors will create rough waters for procurement officials and government contractors alike in Europe.

The Compliant Company: A Safe Harbor in Heavy Seas

Companies engaged in public procurement in Europe have a rare moment of calm to prepare for the storm. If the tempest over corruption in Europe continues to build, a company that has strong compliance policies and procedures will be in the best position to show that it operates transparently and accountably. That ability would be a beacon, calling in contracts to the safety of fair dealing. A near-term investment in anti-corruption compliance by companies is well advised. When European procurement agencies find themselves adrift in a sea of criticism over corruption, they will seek the protected harbors of companies that can show reliable anti-corruption compliance.

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