BULGARIA: CORRUPTION MAKES A COMEBACK IN 2005

C O N F I D E N T I A L SECTION 01 OF 03 SOFIA 000502

SIPDIS

SIPDIS

E.O. 12958: DECL: 03/29/2016
TAGS: PGOV KCOR KCRM BU
SUBJECT: BULGARIA: CORRUPTION MAKES A COMEBACK IN 2005

Classified By: DCM Jeffrey D. Levine, for reason 1.4 (b) & (c)


1. (SBU) Summary: Corruption in Bulgaria reached a high-water
mark in 2005, reversing a gradual positive trend of declining
rates of corruption from 1998 to 2004. This was the main
conclusion of the seventh annual Corruption Assessment Report
prepared by the NGO, Center for the Study of Democracy (CSD)
and presented to the public on March 22. According to CSD,
"soft" anti-corruption measures, such as public awareness
campaigns and the training of public sector officials, have
exhausted their usefulness and should be replaced with more
effective and punitive measures. Anti-corruption reforms to
date have primarily affected administrative graft but have
left untouched large-scale political corruption. A key
emphasis of the forum was the need to address high-level
political corruption, particularly party financing and the
circle of companies, foundations and institutes surrounding
various political parties. End Summary.

Corruption on the Rise
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2. (SBU) Since 1998 the Center for the Study of Democracy has
been monitoring the basic form, scale and trends of
corruption in the country through a set of "corruption
indexes" established under the "Coalition 2000"
initiative--an effort aimed at promoting anti-corruption
reforms and policies. The annual reports are designed to
help Bulgarian policymakers and others understand the overall
trends and dynamics of corruption and effectiveness of
anti-corruption policies. According to past reports, the
general trend in Bulgaria has been a gradual decline in
corruption from 1998 to 2004. The latest report, however,
reversed the trend, showing a significant increase in the
number of corrupt deals during the last year and a half
(April 2004-November 2005).


3. (U) According to the report, petty administrative
corruption has risen, as has the number of cases in which
citizens have been pressured by public sector officials to
engage in corruption. As compared to March 2004, the number
of corruption transactions has increased from about 80,000
per month to about 130,000 per month, according to the
report. Indeed, the report cites that "in 2005 the incidence
of pressure exerted by officials and of actually executed
corruption deals reverted to the higher rates characteristic
of the 1999-2001 period." CSD attributes part of this
reversal to the recurrent increase in corruption at the end
of an election cycle. It may also reflect the public's
decreasing tolerance of--and willingness to
report--corruption. On a positive note, corruption pressure
(when citizens are asked for money, favors or gifts to
resolve problems) is down in the judicial system as a whole,
mainly due to reforms and internal anti-corruption measures.
Police officers and doctors, however, topped the corruption
charts in the last year and a half.

A New Frontier for Political and Economic Corruption
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4. (SBU) The opportunities for political and economic
corruption in Bulgaria continue to fluctuate and shift as the
country advances along its path of transition and eventual EU
membership. Informal networks between political parties and
economic groups--often in the form of favored, sometimes
shadowy, companies--have developed over time. (The
institutionalization of these political and business networks
has become popularly known as the "circle of companies" after
the leader of the Movement for Rights and Freedom, Ahmed
Dogan, unabashedly acknowledged their existence as an
integral part of Bulgarian political life in last year's
election campaign).


5. (C) In a meeting before the release of the CSD report,
Former Finance Minister Milen Velchev acknowledged candidly
the lack of transparency in political-party financing.
Noting that Bulgaria is still largely a cash economy and
donations to political parties therefore usually come "in
suitcases," Velchev said greater transparency is unlikely
anytime soon. He said that five years after his return to
Bulgaria from London, he sometimes caught himself thinking of
these transactions as "normal." Velchev was quick to point
out that the NMSS did not receive money from organized crime,
but that legitimate businessmen also preferred to keep their
donations anonymous and off the books. "I can,t imagine who
would support (greater transparency) at this time," Velchev
said; "It,s too much a part of the culture." He said that,

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among political-party leaders, MRF leader Dogan was the most
unapologetic about his sources of funding. Velchev made
reference to Dogan,s televised acknowledgement that the MRF
receives funding from "a circle of companies," and mentioned
a discussion of party financing with Dogan wherein the MRF
leader told him, "Don,t worry, you will soon learn how to do
double accounting."


6. (SBU) These informal political and economic corruption
networks continue to exploit various opportunities related to
Bulgaria's transition. In the earlier part of Bulgaria's
transition, these networks, along with organized crime, had
numerous opportunities to redistribute national wealth by
siphoning money from state-owned enterprises and banks, bogus
privatizations, and tapping into smuggling channels. As most
of these channels have gradually dried up and the process of
EU harmonization has narrowed available channels for crime
and corruption, the focus of these networks have shifted to
control over public procurement, concessions, EU funds, VAT
fraud, and securing appointments to the executive or
judiciary in order to facilitate corruption schemes and
ensure freedom from prosecution.


7. (SBU) Public procurement and concessions represent a key
area of growth for such groups. According to CSD, politically
favored firms in Bulgaria are usually financed through public
procurement contracts and concession agreements. In return,
these firms reward their patrons with direct or indirect
financing of party activities, hiring of party functionaries
or associates, or payment of overseas studies for the
children of senior party officials. CSD estimates that the
companies that finance political parties have diverted
roughly 320 to 370 million Bulgarian leva (USD 196-227
million) in public funds through public procurement deals in

2005. It is no accident that the amount of abuse peaked last
year. CSD has established a clear link between the awarding
of public procurement contracts and the timing of elections,
either local or national. In 2005 the number of public
procurement contracts signed by state institutions rose
disproportionately on a year-to-year basis.


8. (SBU) Over the last five years the public procurement
market in Bulgaria has grown substantially both in terms of
the number and total value of contracts. In 2003, public
procurement contracts were valued at 1.5 million leva or USD
920,000 (19.6% of the budget); this amount doubled in 2005 to
3.3 million leva or USD 2 million (31.3% of the budget).
Since 2003, the public procurements tenders have been won by
a decreasing number of companies. Part of this is due to a
natural consequence of market specialization of certain
companies working with the central and local administration,
but it also reflects the fact that many companies will not
consider bidding for contracts if they do not have a
political patron beforehand, according to CSD.


9. (U) CSD estimates that an average of 7% of the total value
of a contract--or a total of 55 million leva (USD 34 million)
worth of public resources--ended up in the pockets of people
from the central or local government administration. CSD is
not alone in highlighting the increasing corruption pressure
in Bulgaria's public procurement process. The EBRD, in its
latest report on economies in transition, stated that
corruption payments for awarding public procurements
contracts was the only type of corruption in Bulgaria's
business sphere which clearly worsened in 2005 (rising to
2002 levels). Bulgaria was the only country in Southeastern
Europe to decline compared with last year's survey and now is
running second--only to Albania--in terms of the level of
public procurement bribery, according to EBRD.

Public Growing More Intolerant of Corruption
--------------


10. (SBU) According to CSD, the Bulgarian public is becoming
less and less tolerant of corruption. CSD has witnessed a
steady decline in the number of citizens willing to engage in
corruption and believes people are increasingly starting to
feel victimized when subjected to corrupt practices. Values
in the "susceptibility to corruption" index were at their
lowest level in late 2005. There also is a widening gap
between the perceived spread of corruption and the actual
level of victimization, which reflects people's ethical
assessment that the observed level of corruption is too high,
according to CSD. Similarly, there has been an upward trend
in the public's perception of corruption as a growing
concern. Since 1998, corruption has consistently ranked among
the top five socio-economic problems, typically falling in

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the fourth or fifth position after economic issues or general
crime. However, in 2004-2005, corruption was identified as
the third most important problem (followed by low incomes and
unemployment). Part of this increase may be attributed to the
2005 election cycle, when the public's expectations regarding
such issues are usually heightened.

COMMENT
--------------


11. (C) Though none of the information in the CSD report
comes as a surprise to Bulgarians, its publication generated
significant media coverage by shining a particularly bright
spotlight on the financing of political parties and
corruption in public procurement. Unfortunately, the media
bounce lasted only a few days, and there is little short-term
prospect of serious reform. In the longer term, efforts by
the new Chief Prosecutor to lift the parliamentary immunity
of allegedly corrupt MPs may have a chilling effect on some
of the most egregious acts of corruption, but true reform
will require a change in Bulgaria's political culture. As
former Finance Minister Velchev told the Ambassador , there
is little interest in changing the way political parties are
financed because "everyone benefits" from the current system.
Beyrle