VISEGRAD BLOG: Corruption still rots Central Europe from the head

VISEGRAD BLOG: Corruption still rots Central Europe from the head
The outcry over the murder of investigative reporter Jan Kuciak and his fiancée Martina Kusnirova, and the massive corrupt network it revealed, eventually toppled Slovak Prime Minister Robert Fico.
By Robert Anderson in Prague August 24, 2022

When Western investors first arrived in post-communist Central Europe in the early 1990s they were shocked by the corruption they encountered, both in the state administrations and from business partners. One Western embassy’s trade attache (whose previous posting was in Saudi Arabia) told me that he advised would-be investors not to be misled by appearances: “Just because Czechs don’t wear a keffiyeh [an Arab headdress], don’t assume they think the way you do.”

Today, even though it is 32 years since the start of the transition to a Western-style market economy and 18 years since the Visegrad Four (V4) joined the EU, corruption remains a regular complaint of investors as well as a huge domestic political issue that saps confidence in democracy and boosts populist movements.

All countries are well below the EU average of 66 points in the 2021 annual Transparency International Global Corruption Perception Index, with Hungary and Poland actually falling further behind year by year, Czechia standing still, and only Slovakia currently making any progress, rising four places last year. “Slovakia’s progress stands out among its immediate neighbours,” says the 2021 report.

In Hungary (43 points) the rampant corruption of Viktor Orban’s radical rightwing regime has forced the European Commission to suspend the release of Reconstruction and Resilience Facility funds and could even hold up its allocation of Cohesion Funds in the new budget.

In Czechia (54), populist former premier Andrej Babis was accused by the opposition of taking over the state, and Transparency International docked the country five points during his government. However, now that it is in power, the five-party centre-right coalition government is currently convulsed by a bribery scandal within the Mayors and Independents Party.

Meanwhile in Poland (56), the ruling radical rightwing Law and Justice party claims to be purging the country of the influence of former communist tycoons and judges, while it builds new state champions run by its own men.

Only in Slovakia (52) are there signs of hope, though even there the ruling rightwing government is struggling to dismantle the corrupt networks built up by the governments of former premier Robert Fico, and may soon collapse, giving him a chance to return to power.

Corrupt habits

The resilience of these corrupt habits is typically blamed on the way that over the centuries Central Europeans became inured to manoeuvring around first the Hapsburg Empire’s bureaucracy (in the case of Czechia, Slovakia and Hungary), and then the communist regimes imposed by the USSR after 1945.

On top of this, in the “Wild East” 1990s, all the V4 countries experienced the chaotic establishment of new institutions, and often a virtual free-for-all over the redistribution of state property. As Vaclav Klaus, the rightwing Czech premier during this period, once reportedly said, rebuilding capitalism was like turning off a light in a crowded room and then seeing who was still standing when the light was turned back on. Such an experience was hardly likely to inculcate moral qualms about corrupt practices.

In Czechia, the Civic Democrat (ODS)-led governments of the 1990s were notoriously corrupt. But after Klaus’ last coalition collapsed over a ODS party funding scandal in 1997, the succeeding Social Democrat-led governments proved almost as venal. As the leading Czech investment banker at that time, the late Johannes Kinsky of JP Morgan,  told me after (current president) Milos Zeman’s Social Democrats (CSSD) took over, “with the CSSD you get disorganised corruption, but with the ODS it’s organised”.

When I challenged Klaus about the issue of corruption in an interview after he had resigned as premier, he made a revealing comment. After first admonishing me that he should throw me out of the interview, he then claimed that Czech corruption had always been small-scale – it was the foreign investors who had brought with them serious graft.

In an infamous keynote address to the US Chamber of Commerce that I attended at around the same time, the dyspeptic leader of the Czech transformation accused foreign investors of “despekt” (scorn) for criticising the country over corruption. (Klaus then went on to tell a woman who asked about anti-semitism that she should seek medical help. The chamber afterwards announced that “in the interests of better Czech-US relations” it would not be releasing a transcript of the proceedings.)

But there was some truth in what Klaus said – many foreign investors were hardly good advertisements for the capitalist faith that they were meant to be bringing, and some exploited the weak institutions of the new democracies. Some companies felt right at home: the CEO of one Austrian investor in Czechia once joked to me, “I love this country, it’s just as corrupt as Austria.”

Often the bribes paid by the rising domestic business groups in the 1990s were ridiculously small; it was only when foreign investors arrived, keen to win privatisations or contract tenders or get laws changed, that the asking price of corruption soared.

Since EU accession in 2004 and the waning of the privatisation wave, subsidies from Brussels have provided a nice new money flow for well-connected local oligarchs and the politicians they back. This is something the EU has finally woken up to, at least in Hungary and perhaps in Czechia, with Brussels’ refusal to reimburse state subsidies to Babis’ Agrofert conglomerate.

Today in Central Europe the main worry is state capture by these domestic oligarchs, who seek state procurement tenders and access to state budgetary and EU funds, and to get laws written to order. In return, politicians receive personal and party funding, and favourable media coverage.

“They know how to kill legislation, how to influence legislation,” says David Ondracka, former head of the Czech branch of Transparency International.

Hungary is an example of state capture from the inside, by Orban and the new business elite he has forged.  By contrast, Fico’s Slovakia was an example of state capture from the outside, as oligarchs close to the premier asset stripped the state. In Czechia the centre-right government now says it will “deAgrofertise” the state – a reference to the way they say Babis’ agro-chemical conglomerate benefited from his rule.

Slovak model

Slovakia shows how this dismal cycle can be broken. Journalists acted as the main opposition to Fico’s corrupt regime and it was the outcry over the murder of investigative reporter Jan Kuciak and his fiancée, and the massive corrupt network it revealed, that eventually toppled the strongman and his nominally centre-left Smer party.

The new centre-right government has made fighting corruption its lodestar and the country is now ranked top for transparency in the region by the European Research Centre for Anti-Corruption and State-Building.

The government has removed Smer appointees from the police, prosecutors and judiciary and has brought corruption charges against them, as well as against Fico and his right hand man, former interior minister Robert Kalinak. Last year a record 252 people were prosecuted for corruption.

It has also established a dedicated Whistleblower Protection Office, a Supreme Administrative Court, and has increased the transparency of appointments, tenders and beneficial ownership.

“[Before] we knew that corruption scandals involving politicians never got investigated,” investigative reporter Martin Turcek told me last month – journalists uncovered scandals that were then simply hidden by the police. Now he says the police are finding the scandals first. “This development is unprecedented.”

Turcek says that the anti-corruption drive has revealed the scale of the problem was much bigger than feared. “It is beyond journalists’ imaginations and we have not seen half of it yet.”

The drive has also recorded some significant successes – notably the jailing of former special prosecutor Dusan Kovacik for eight years – as corrupt police and prosecutors grass each other up. “Before people kept their mouths shut. Now they are much more courageous,” says Turcek.

Yet the drive has also sparked criticism, particularly of the way that it is being allegedly directed only against Smer, while many doubt that prosecutors will be able to make serious charges stick to Fico. “It’s a war,” says Martin Barto, a member of the National Council of coalition party SaS.  “It’s very difficult to make gains in a war against a strong enemy.”

Moreover, across the region, corruption has become much more sophisticated than in the 1990s. Wine boxes full of cash have been replaced by fat marketing or legal firm contracts, allowing some money to 'disappear', or it is funnelled through chains of offshore companies.

“The expectations are far too high,” says Pavla Holcova of the Czech Centre for Investigative Journalism about the Slovak anti-corruption movement, which she has been part of (she worked with Kuciak). “There is a drive but the hope to really uproot the corruption and change the system and solve the [Kuciak] murder is not there any more.”

Lack of political will

The worry is that failed anti-corruption drives can be just as or even more damaging to democracy than corruption itself. Prosecutions of corrupt officials, politicians or businessmen often take too long and rarely result in convictions, unless they are caught red handed with a winebox full of cash, like jailed former Czech health minister David Rath.

Often opposition parties or new populist anti-graft “movements” win elections pledging to fight corruption – such as Babis’ ANO – and then conveniently forget their promises and become tarred with corruption themselves.

There is always little appetite among politicians to impose asset declarations on themselves, tighten party funding and lobbying rules, prevent revolving door appointments to cushy jobs, or increase the transparency of appointments to, or the independence of, prosecutors and watchdogs.

Yet at least Slovakia’s ruling populist OLaNO party is still trying to fight corruption, despite all the obstacles. There is no chance of a similar drive in Hungary or Poland, while in Czechia there is little hope that the new ODS-led government will prioritise it, given the party’s wretched record and the scandals that already surround its Justice Minister Pavel Blazek. 

Czech Prime Minister Petr Fiala’s government is promising better protection of whistleblowers, more transparency in business ownership, as well as a reform of conflict of interest legislation to bring it closer to EU standards and close the kind of loopholes that allowed Babis to claim EU subsidies for his businesses while premier. 

However, there is a silence over the other gaps highlighted by Transparency International’s 2021 survey or the European Commission’s 2022 Rule of Law report: more transparency in tenders, stronger powers for the Supreme Audit Office to investigate fraud in state institutions, tougher lobbying rules, a code of conduct for legislators, and reforms to the civil service law and the prosecutors’ office to increase the independence of office holders.

“There is no visible vision or concept and political will to solve these key areas. Unfortunately, the new government does not yet show such significant ambition in this regard,” said the Commission’s 2022 Rule of Law Report.

Nor are journalists playing the same leading role as in Slovakia, largely because almost all the main media are owned by the very oligarchs that they should be investigating. “I don’t see the changes ongoing in Slovakia happening here,” concludes Holcova.