CZECH CORRUPTION: BAD, AND UNLIKELY TO GET BETTER

UNCLAS SECTION 01 OF 04 PRAGUE 001329

SIPDIS

E.O. 12958: N/A
TAGS: KCOR PGOV EINV KJUS EZ
SUBJECT: CZECH CORRUPTION: BAD, AND UNLIKELY TO GET BETTER
SOON

REF: PRAGUE 1275


1. SUMMARY. In light of several recent Czech corruption
scandals, post offers the following snapshot of the issue.
Internal statistics, as well as assessments from Transparency
International and the World Bank show the number of cases is
increasing, while the government's effectiveness in combating
the problem is going down. Moreover, for political,
administrative, and even cultural reasons, the problem of
corruption could even get worse in the near future, though
the public does not seem sufficiently enraged, particularly
in light of favorable economic statistics, to vote against
the parties responsible. END SUMMARY

-------------- -
-------------- --------------
PETTY CORRUPTION IS BEING DEALT WITH, SYSTEMIC MALFEASANCE IS
NOT
-------------- -
-------------- --------------


2. Oldrich Kulik of the Ministry of Interior broke the
problem down into three types. The first he described as the
type of petty corruption that was necessary before the velvet
revolution of 1989. In the old days, the state distributed
almost all goods and services and did so very inefficiently.
Consumers had to pay bribes to get things the state couldn't
provide in sufficient quantities, timeliness, etc. Nowadays,
the market provides most goods and services. So, Krulik
explained, this type of corruption is to a large extent gone.
Exceptions are the health care sector, where the state is
still the main provider.


3. The second type of corruption involves discrete acts by
low-level employees of the state, who abuse their power for
personal gain. Traffic police, and employees working at the
commercial registry are two examples of this frequently
mentioned. Krulik explained that the government is trying to
use technology to limit this problem. He cited the example
of the system which uses a camera to take a picture of a
driver running a red light and then mails the violation to
the driver, who can mail the fine back. In that case, there
is no direct contact between the public and the public
official, eliminating the possibility of a bribe. Making it
possible to register a commercial firm on-line would have a
similar effect.


4. Krulik explained that policemen make only half of what
officers in the military earn. Moreover, because the Fire
Brigade has 14 districts, compared to only 8 for the police,
there are fewer opportunities for police officials to move up
the regional ranks. Krulik also said that policeman must
undergo lengthier training than their better paid
counterparts in the Army and Fire Brigade, and are even
required to learn foreign languages. He understood how those
inequities could move some policemen to feel they deserve
more money. In addition, the government has announced plans
to cut police pensions, a move that could lead to as many as
5,000 experienced police officers leaving the force before
the law takes effect. Inevitably, some will be tempted to
make some extra money before they go into retirement with a
reduced pension.


5. The third type of corruption cited by Krulik was
malfeasance by high level officials, particularly with large
public procurements. Whereas Krulik was hopeful about
managing the first two types of corruption, he offered many
reasons why it is unlikely that corruption in procurement,
the judiciary, and the legislative process is going to be
reduced in the near future.


6. There are many ways of avoiding honest tenders. The
competition can be arranged so that only one firm can win.
This was the case with the supersonic tender in 2002-3, from
which all but one firm dropped out. Administrators can also
reject all but one bid, on administrative or procedural
grounds - missing a stamp, for example. Finally, Czech
laws allow no competition bids. The Army, for example,
needn't issue a public call for bids if strategic military
equipment, vital for the country's defense, is at stake.
However, this clause is used for nearly every purchase the
Army makes. Between 1993 and 2003 the Army made more than
700 acquisitions and only nine were put out for public
tenders.

--------------
NO PATRIOT ACT HERE
--------------


7. The state seems reluctant to grant law enforcement
authorities additional powers to strengthen their ability to
fight corruption. Attorney General Marie Benesova has asked
for an additional 50 prosecutors to go after corruption.
Justice Minister Pavel Nemec, who is seeking her dismissal
(Reftel) has so far refused her request. There is also great
sensitivity about the potential for abuse of personal data,
and the overuse of wiretaps. The senior opposition party,
ODS, tried to rewrite the wiretap law saying that if no
criminal case had been opened two months after the wiretaps
began, then officials would have to notify the citizen of the
wiretap and inform them that they could file a suit against
the state for unfairly violating their rights. This proposal
was voted down in parliament, but reflects a cultural bias
against giving the state too many investigative tools.


8. In light of Czech history, in which citizens were under
the supervision of the Austro-Hungarian Empire, the Nazis,
and then the Soviets, it is perhaps understandable that many
are reluctant to give authorities too much power. In the
same vein, citizens feel fewer obligations when it comes to
the state and public property. There is even a Czech saying
that those who don't steal from the state, cheat their
families.

--------------
--------------
NO INTEREST IN CONFLICT OF INTEREST LAW EITHER
--------------
--------------


9. Czech officials have also dragged their feet on any
progress towards passage and implementation of a meaningful
conflict of interest law. The first conflict of interest law
was passed in 1990. The first time all required individuals
filed the mandatory disclosure documents was in 2004,
fourteen years later. Nobody was punished or sanctioned for
failing to file in all those years. Amendments to strengthen
the 1990 law, drafted with the help of Transparency
International, would have, among other improvements, altered
local election rules. The constitutional court ruled this
June that election rules can only be changed with the
approval of both houses of parliament. Since the senate
vetoed the amendment last year, the country has been left
without an effective conflict of interest law. Petr Stepanek,
a councilor with the Green Party, a member of the Prague
city council anti-corruption commission, and a member of
several NGOs promoting transparency and accountability in
government, says the most recent proposal on conflict of
interest is a bad law. But he also adds, a bad law is better
than no law, and therefore he and others, such as
Transparency International, will probably support it.


10. Stepanek pointed out some of the shortcomings of the
proposed bill. First of all, the new bill, like the 1990
bill, doesn't require unpaid members of a city council to
disclose anything. Stepanek estimated that in the past
&100 percent8 of city officials have simultaneously held
down paid positions with commercial firms, usually ones
bidding on city contracts. (Stepanek said Prime Minister
Jiri Paroubek had five paid positions while in an earlier job
in charge of Prague's finances.) In many cities,
particularly outside of Prague, a position on the city
council is a part-time job. Stepanek argues that corrupt
officials can simply make these part-time positions unpaid,
and continue to draw handsome salaries and kickbacks from
commercial firms doing business with the city governments,
all without any obligation to disclose this income.


11. In addition, Stepanek explained that the new proposal
removes the need for spouses of government officials to
disclose their assets. The new proposal will also, in
Stepanek,s opinion, not eliminate problems with deals
between officials and &close persons,8 meaning relatives,former business
contacts and the like. Finally, Stepanek
argues that under the 1990 bill, the upper house of
parliament kept an eye on the lower house of parliament and
vice versa. Under the new bill, each house will police
itself, an arrangement that Stepanek feels will lead to few
investigations.


12. The new proposal passed its first reading in August,
2005, and has been set aside for 90 days of discussion before
the second reading. This could take place late in November
at the earliest. Stepanek predicted that all the parties in
parliament will be against passage of the new proposal. But
he felt the senior party in the ruling coalition, CSSD,
might be able to score some political points by passing it in
the lower house and then sending it to the ODS-led Senate
just before the election. He predicted that ODS would then
veto it, laying themselves open to criticism on one of the
issues they are weakest at, corruption.

--------------
-------------- ---
A NEW ODS GOVERNMENT WOULD BE UNLIKELY TO SOLVE THE PROBLEM
--------------
-------------- --------------


13. When the latest proposal was first introduced, some of
its proponents wanted to include members of local governments
and family members. ODS, which is expected to garner the most
votes in next year's parliamentary elections, reacted by
posting on the party's official web site, a note saying ODS
was always willing to discuss such a bill, and would be
willing to support it, if it didn't ¶lyze the activities
of local and regional representatives, or excessively limit
personal freedom and the right to privacy, and that the
circle of people touched by the bill is reasonable so that
family members are not persecuted.8


14. ODS' opponents generally argue that ODS is the party
least likely to fight corruption. The argument that is made
is that ODS is in charge of 13 of the country's 14 regional
governments, and the majority of the country's municipal
governments. Since most construction projects take place at
the municipal or regional, rather than national level, ODS is
in the best position to benefit from overpriced or
unnecessary construction projects.


15. Further evidence of the ODS position on corruption can
be seen in the party's reaction to a Transparency
International questionnaire. In the fall of 2002,
Transparency International sent six questions to 1025
candidates running for positions in the city councils across
Prague. Roughly 30% of the candidates responded to the
poll. Each of the five parties with current representation
in parliament had 70 candidates running. The Christian
Democrats had the most respondents, 28 of 70, followed by
the Social Democrats with 22, the Communists with 12,
Freedom Union with 10 and ODS with just 1. Three of the
parties; The Christian Democrats, the Social Democrats and
the Communists, helped Transparency International distribute
the questionnaires to their candidates. ODS refused to get
involved.

-------------- ---
EXPOSED DOESN'T MEAN PROSECUTED
-------------- --------------


16. Cases of corruption are exposed. But almost without
exception, headline grabbing stories quickly die down, or
are replaced by the next sensational scandal, and nobody is
ever held to account. The following are all stories that ran
in the main Czech dailies between June 9 and June 16, 2005.
In the three months since then, no arrests have been made or
fines levied in connection with these cases. In addition, an
internet search shows that no news articles on these scandals
ran after the initial wave of publicity.
- The Ministry of Defense is looking into a no-bid
contract for more than US$80 million that went to an
engineering firm run by a former MOD employee. The contract,
to destroy old surplus ammunition, was let by the same
department the former employee used to be the Director of.
In addition, the engineering firm is controlled by
Omnipol, the boss of which was for a time paying the rent on
the house of the Deputy Defense Minister, who was the
supervisor of the former MOD employee.
- One of the main national dailies featured front-page
photographs of the Justice Minister running a red light and
driving the wrong way down the tram tracks to avoid
traffic delays. The paper also ran a page two photo spread of
the Defense Minister illegally driving on the tram tracks on
his way to a vote in parliament.
-The Agriculture Minister awarded a grant for $180,000
to help a very small village connect to sewer lines. The
Minister's wife's family has owned a rundown spa in the
village for years and has been trying to renovate, but can't
do so until the facility is connected to the sewer lines. The
Minister refused to acknowledge any conflict of interest.
The Prime Minister only said that the Agriculture minister
was "inexperienced, but not dishonest."
- Three members of a committee at the Ministry of the
Finance were turned in by a firm from which they requested a
payment of US$ 2 million, in exchange for steering contracts
towards the firm.
- A policeman with responsibility for financial affairs
at Prague City Hall resigned after it came to light that he
had accepted a US$200,000 loan and an expensive vacation from
a crooked soccer boss who had a criminal case pending in
Prague.
- 159 Czech soldiers serving in Kosovo were caught when
they took delivery of two sets of new uniforms, but signed
documents saying they only received one set.


17. In the late 1990's, the Klaus-led ODS government was
brought down by the perceived excesses of a wild-west
capitalism. 30 of the 60 existing banks went bankrupt, 700
of the 800 licensed securities dealers had their licenses
revoked. This led to the creation of The Unit for Serious and
Economic Crimes within the state prosecutor's office. That
office takes on any case in which damage to the state is over
50 million Crowns (US$2.2 Million) or the combined damage to
individuals is over 100 million Crowns (US$4.4 Million). But
prosecution of run of the mill bribery, or abuse of power, is
left to lower level district prosecutors, who typically have
more than 200 cases to work on, must be in court three to
four days a week, and have neither the time, the resources,
nor the training to conduct investigations into allegations
of corruption.

18. The EU,s DG for Legal Affairs published a report on
corruption in the Czech republic at the end of 2002. In the
conclusion, the report states that &There is an astonishing
discrepancy between the generally accepted existence of an
environment vulnerable to, and affected by corruption, and
the absence of a high number of corruption prosecutions."
Little has changed since that report was published. The
World Bank publishes an assessment of Governance and
Anticorruption every two years. The assessment is a
compilation of indices provided by more than a dozen experts
and NGOs in each country. The numbers for the Czech Republic
reflect a consistent decline in the government's response to
the problem over the last ten years.

1996 1998 2000
2002 2004
Government Effectiveness 81.6 80.3 74.7
75.1 71.6
Rule of Law 73.5 73.5 72.2
72.4 69.9
Control of Corruption 77.3 72.7 73.1
66.8 66.0


19. In a mature two-party system, such as the one found in
the US, each party can keep an eye on the other. But in the
Czech Republic, particularly over the last 2 election terms,
parties have instead shielded each other. In the current
coalition of 101 members in a 200 seat chamber, the coalition
can not afford to alienate a single member. In the previous
electoral term, the two main parties signed what became known
as the opposition agreement and to a large extent split up
the spoils. This has opened the door to alternative parties,
and to a certain level of protest votes, the main beneficiary
of which has so far been the Communist party. That party's
web site ran a speech on June 9, 2005 by Karel Klimsa, deputy
chair of the party's central committee. In the speech,
Klimsa said, "We want to show the voters that we are
different, that we have a different morality, that politics
for us isn't just a business, that it isn't trafficking with
the public interest."

--------------
IRRITATED, NOT INCENSED
--------------


20. CONCLUSION: In the old days, everyone had to engage in
some sort of fiddle just to get by. With the development of
a robust market economy, corruption is increasingly becoming
the reserve of the politically powerful and their businesscronies. The
public resents that. A poll on September 6
found that the one thing that bothered Czechs most was
corruption. 83% of respondents said corruption bothered
them. A separate poll earlier this summer showed that the
Czech public thinks political parties are the most corrupt
institutions in the country. This helps explain the
popularity of the unreformed communist party, which has not
been a part of any post-89 government, and consequently
benefits from a significant protest vote. It also offers
some hope to the small parties such as the Greens, that
couldn't make it over the 5% threshold needed for
parliamentary representation in 2002. But the voters don't
seem outraged enough to force the parties currently in power
into taking meaningful steps to reduce corruption, punish
wrongdoers, or throw crooked politicians out of office. In
the September 6 poll, only 52% of respondents said they were
dissatisfied with the political status quo. The fact that
corruption is widely acknowledged, yet tolerated, might be
the most discouraging news of all.


CABANISS