ROMANIA, BULGARIA, THE CZECH REPUBLIC AND ITALY 2018

Executive Summary

The report focuses on assessing the quality of the policy response to clientelism, poor governance and corruption in state-owned companies in four member states of the EU – Romania, Bulgaria, the Czech Republic and Italy. This report uses five categories of indicators and assesses their implications at the level of state-owned companies: 1) the quality of the legal framework for corporate

1) the quality of the legal framework for corporate governance;

2) control mechanisms;

3) public policies on prevention;

4) repressive and anti-corruption policies; and

5) main risks and challenges faced by SOEs.

Having a corporate governance framework is mandatory for creating the incentives required for SOEs to perform on the market. It plays a crucial role in ensuring proper management for SOEs, better accountability and transparent mechanisms for a more efficient use of public resources. This framework also provides benchmark indicators, ensuring an objective analysis of these companies and their management.

Romania and Italy have an extensive corporate governance framework, while the Czech Republic and Bulgaria are faced with key legislative shortcomings. Although there are discrepancies between the quality of legal framework in all four countries, a common issue emerges: with no will for proper enforcement, the framework is systematically infringed and its applicability is limited. Legislative provisions in this sense are systematically infringed and national authorities are exploiting the shortcomings.

Romania adopted a very ambitious corporate governance framework as early as 2011, but the Parliament passed new amendments last year exempting over 100 SOEs from the scope of the framework. The Bulgarian legal framework is weakened by the lack of synchronization between the various laws and regulations, and by contradictions within the regulations. The Czech Republic does not have a state ownership policy. Czech SOEs are rather subject to arbitrary procedures. Italy, as host to the largest number of SOEs in the European Union, has just proposed new legislation with a view to better controlling and monitoring these enterprises.

The quality of the control mechanisms is crucial in sustaining more efficient use of state resources and mitigating illegal behaviours. In the four countries under scrutiny, control is quite limited, both in terms of its scope and its legal consequences. State institutions responsible for ensuring proper control processes are faced with fundamental shortcomings: overlapping responsibilities, unclear control criteria (rare thematic controls, insufficient in terms of time span and human resources), limited identification of risks areas.

A similar situation can be identified with regard to the internal control mechanisms of these enterprises. It is more of a formality than a well-defined tool of checks and balances. It is often less efficient than external control, which is led by other institutions. At large, internal control is rather weak, and it fails to properly carry out its tasks. That is because, in practice, it is highly dependent on top level appointments and it is not an independent body.

With limited coercive measures and legal consequences, control measures usually fail to improve management and performance for SOEs. The cooperation between institutions with responsibilities in the area of criminal investigation and institutions with administrative control duties has been deficient. In the case of Romania, which has an impressive track record of combating high-level corruption, the prosecution highlighted the risk areas that should be further investigated or addressed institutionally, by the means of control and through proper enforcement of prevention tools.

Public strategies and measures in the field of prevention are common in most member states under analysis. In the cases of Romania and Bulgaria there is extensive regulation, cross-sectional and multi-sectorial, given their exposure to corruption. Romania targeted state-owned companies and business integrity in a specific manner, including using monitoring and prevention mechanisms within the National Anti-Corruption Strategy. Bulgaria has a broader approach in its National Anti-Corruption Strategy, which includes prevention, but lacks risk elements, since the efficiency of the fight against corruption is still limited. The Czech Republic is still confronted with the politicization of companies and the lack of drastic sanctions, which Italy is testing its new approach based on reporting, compliance and prevention at all levels.

Nevertheless, there is no monitoring of the implementation of these measures in most states, and risk analyses and vulnerabilities are addressed mostly bureaucratically. Transparency and the use of open data are still challenges for most of the state-owned companies analysed, but, there are also good practices, which should be documented and disseminated.

Effectiveness of anti-corruption or criminal policies remains a challenge in some of the countries included in this project, with Bulgaria and the Czech Republic lacking any relevant, well-documented investigations with final convictions, recovery of the proceeds of crime or extended confiscation. Like Bulgaria, Romania, is monitored by the European Commission through the Mechanism for Cooperation and Verification.

Every year, it manages to consolidate an impressive track record concerning the investigation and conviction of fraud against public budgets and resources, which includes relevant cases, at the highest level, involving state-owned companies. Cases investigated by the prosecutors of the National Anti-Corruption Directorate (DNA) or the Directorate for the Investigation of Organized Crime and Terrorism (DIICOT) also lead to the prosecution and conviction of ministries, who took decisions favouring interest groups in the energy sector. Although the perception in the business environment is that corruption, nepotism and clientelism are very frequent in the other three countries in our analysis, only very few cases were investigated. Italy could be a future role model for the other countries, as it shifts from public policies based on repressive measures and intense enforcement of criminal laws, to a prevention-based approach. It is too early to assess the results.

The analyses carried out and the results of the quantitative and qualitative research conducted in each country for this project indicate that a more coordinated approach at European level is necessary and that it is also essential to consolidate reporting related to state-owned companies in a more structured, constant and transparent. The report shows that improving public reporting in state-owned companies at national level under the umbrella of Eurostat, for instance, as well as consolidating chapters regarding state-owned companies in other EU mechanisms (the European semester, the convergence programme, reports on public procurement etc.). At the level of the European Commission, recent initiatives could be continued to create a White paper for the performance of SOEs in the EU, with the prospect of a EU policy instrument. Consolidating the reporting and a tighter coordination at EU level could be important steps in activating more efficient prevention and control mechanisms. Early warning instruments, public alert and monitoring should be supported and developed at an academic level and within the civil society and among stakeholders, to create antibodies and public awareness. Lastly, a more consolidated approach at EU level concerning the fight against corruption, where there are no coordination and verification mechanisms such as the MCV – as is the case of Romania and Bulgaria – should be designed in the near future.

Full report available here.