Hard graft in the Czech Republic

By bne IntelliNews August 25, 2011

Jacy Meyer in Prague -

"Number of corruption accusations in [Czech Republic] doubles in 2010"; "Poll: Czechs consider corruption biggest problem"; "Prague's ad campaign tender investigated for corruption" - headlines like this in the Czech media appear almost on a daily basis. Recently, however, different headlines have begun appearing: "National Economic Council unveils anti-corruption plan"; "Regions draft their own anti-corruption strategy"; "New anti-corruption fund awards whistle-blowers". The forces ranged against corruption are fighting back, though everyone admits there is a mountain to climb.

Corruption has long been entrenched in the business environment here; Transparency International's Corruption Perceptions Index from 2010 puts the Czech Republic down at 53rd spot out of 178 countries. The index measures the degree to which public sector corruption is perceived to exist in polled countries around the world. Countries are scored on a scale from 10 (very clean) to 0 (highly corrupt). The Czech Republic scored 4.6. That compares with 7.9 for both Germany and Austria, and 5.3 for Poland.

And that image is harming investment. "The Czech Republic has become toxic because of the perception of corruption - people won't talk about it openly, not to invest, but we know many companies that won't do business with the public sector because of corruption," says Weston Stacey, head of the American Chamber of Commerce and one of the founding members of Platforma pro transparentni verejne zakazky (Platform for Transparent Public Procurement). "When I'm speaking with a potential investor, it is usually question number one - is it [corruption] as bad as I've heard?"

The Platform for Transparent Public Procurement is a project made up of business associations, public institutions and political parties that aims to increase transparency and effectiveness in public procurement. This area is a huge source of corruption - the Platform puts the public procurement market in the Czech Republic at about 17% of GDP, more than CZK600bn (€24.5bn) annually. "Many of our companies reported highly non-transparent and suspicious procurement tenders and we recognized this one area was creating such a reputational and performance issue for the government," says Stacey. "It was hurting investment and the government's ability to provide quality public services."

The group saw a major success this summer when a draft Public Procurement Act survived its first reading in parliament largely intact, with many of the elements the Platform had proposed. 39 actions points were put forth by the group, including the need to make public the tender online, openness about the actual owner of a company bidding for a government tender, and ensuring methodology by which the government can enforce "best value for money" and clarification of the concept of "economic benefit."

Pavel Zeman, Prosecutor General in the Supreme Public Prosecutor's Office, is cautiously pleased about the Procurement Act. "There are good ideas behind the Act and a very good one is that procurement should be published on the internet; it's also very good that this act leads towards getting applicants with a clear management structure," he says. "I'm pretty sure if it passed it should help."

If it passes. Parliament is set to reconvene in September when the legislation will be reviewed again. The positive results from the first reading have left most parties hopeful that it will pass, largely intact.

The A-C team

Zeman took over as Prosecutor General in January and has some major plans to rework the Prosecutor's Office. One of these is to create an anti-corruption team of prosecutors. "The idea is rather simple, there would be a counterpart at the police level, it would centralise the investigation and prosecution and get better results because of the expertise of prosecutors," he says. "It would be good to cover the crimes of corruption, but also competition rule violations, irregularities in public procurement or auctions and bankruptcies."

He believes, however, that criminal justice is not the solver of the problem. "First, corruption must be seen as a phenomenon in society and if nothing else helps, then it's left to the criminal justice system," he says. "I think something must be done with the thinking of the people. It has to be clear to everyone that corruption is not standard, it is illegal, harms society and in the end harms the economy."

Stacey and the American Chamber of Commerce were initially reluctant to get involved in the issue. "Our aim is to make the [Czech Republic] one of the top-10 business environments in Europe," he says. "When we were debating this, for 10 years prior to this decision we always said we would focus on economic legislature and not speak about corruption, it's politically sensitive issue and we didn't want to hurt the process by enabling them to make it an us versus them issue."

Eventually, he says, it was the Chamber's Czech board members that convinced him. "If it's our goal to be in the top 10, we can't get there without addressing corruption and it's our responsibility to speak about it," he says. "If we aren't part of the solution, we're part of the problem."

In good company

One company working hard to be part of the solution is Siemens, which is also a member of the Platform for Transparent Public Procurement.

According to Eduard Palisek, CEO of Siemens Czech Republic, after corruption scandals rocked the company in 2006, the Siemens Compliance System was put into practice at a global level. Organised into three levels - prevent, detect and respond - the structure is a system of activities by which Siemens hopes to ensure their business is in accordance with all laws and regulations. The system "consists of clearly specified guidelines and trainings for all employees to help them prevent any misconduct within and outside the company," Palisek says. "To realise the programme, a worldwide Compliance Department with nearly 600 employees has been set up. Furthermore, an external ombudsman has been appointed in order to give employees a protected reporting channel for possible compliance violations."

Siemens also has a Compliance Help Desk called "Tell Us" - an anonymous way of reporting possible compliance violations for not only Siemens employees, but also for customers, suppliers and other business partners.

These types of activities by the business world are welcomed by both Stacey and Zeman, who cited Siemens specifically when speaking about anti-corruption efforts. "I am very happy that in some companies, especially ones from abroad, they are hiring compliance officers and the companies see that there is a need for a compliance policy," Zeman says. "From everything we do, what our politicians do, it must be clear that we want to persuade people that corruption is negative and it must be the view of the people. It's not something you can change overnight."

Of course, action has to be taken at the local level too, not just top-down reforms. In January, the Czech Association of Regions announced it was preparing its own two-year anti-corruption project at the regional level. They hope to leverage funds from the EU to analyse corruption at the region level and provide training to both clerks and politicians to help fight corruption.

It's this type of more micro-level fight that Stacey believes will bring lasting change. "If political and business leaders show the type of leadership necessary to combat corruption, change will come extremely fast," he says. "With corruption there's an easy way and a hard way. The easy way is that the government and business community make the changes, no great disruption. Or we wait until things get so bad that we have a major political and economic crisis. Our job as leaders is to make sure we don't get to that crisis."

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