Crooked Counsel How Law-Breaking Corporations Are Advising the European Commission

Crooked Counsel how law-breaking Corporations are advising the european Commission martin ehrenhauser non-attaChed member of the european parliament Table of ConTenTs ExeCutive summary 3 IntroduCtion 4 Who advises the Commission? 5 1. DefenCe Companies 7 1. 1. BAE systems 7 1. 2. finmeccanica 9 1. 3. EADS / airbus 10 2. Digital Companies 13 2. 1. microsoft 13 2. 2. Telefónica 15 3. FinanCe Companies 16 3. 1. barclays 16 3. 2. Deutsche bank 18 3. 3. santander 19 3. 4. kPmG 21 4. Oil Companies 23 4. 1. shell 23 5. reCommendations 25 Appendix 27 ReferenCes 30 APpendix referenCes 36 May 2014 Lead Author: Martin Ehrenhauser (non-attached Member of the European Parliament) Research assistance and project management: Heghine Evinyan Written by Andy Rowell Acknowledgements: Special thanks to Corporate Europe Observatory for their advice and guidance in the researching of this report The costs associated with the report (layout, illustration, compiling the text) were financed from the budget of the European Union. The opinions expressed in this report are the sole responsibility of the author and do not necessarily represent the official position of the European Parliament. 2 table of contents crooked counsel Crooked Counsel how law-breaking Corporations are advising the european Commission In shaping EU policies the European Commission often relies on external expertise and advice given by industry-dominated Expert Groups and other advisory bodies. Yet many of the corporations giving this advice have been found guilty of breaking the law. Urgent reform is needed to ensure integrity, transparency and ethics in the Commission’s advisory bodies, ending the reliance on this form of ‘crooked counsel’. exeCuTive summary « The Commission’s influential advisory system — including but not limited to Expert Groups, Stakeholder Groups and European Supervisory Authorities — has been widely criticised for the degree of industry dominance and the lack of transparency. « This report highlights another flaw in the system: many of the corporations advising the Commission have been found guilty or are under investigation for serious ethical, financial or environemntal misconduct, undermining the integrity, transparency, and credibility of the European policy-making process. « The ten corporations highlighted in this report are entrenched within the Commission advisory system and many are household names, advising on issues where they stand to (in)directly gain financially and which are often linked to their illegal activity. This means the Commission accepts, for instance, financial advice from corporations guilty of financial wrongdoings or defence advice from corporations using bribery to win defence contracts. « Advisory group reform should be a key priority for incoming Commissioners, both in ful- filling existing promises made to Parliament and ensuring law-breaking corporations are excluded from the advisory system for a minimum of five years while those under investigation are temporarily suspended. crooked counsel executive summary 3 introduCtion Over the last five years, numerous civil society ily fined by regulators and yet currently are, groups have campaigned against the secrecy or have been, represented in over 30 different and industry dominance of the European Expert, High Level or other groups advising Commission’s various advisory bodies that the European Commission. They include shape EU policies and legislation.1 Many multinational arms manufacturers, tech- of these bodies are formal Expert Groups, nology giants, banking super powers, global which are highly influential in shaping the accountancy firms, and one of the biggest Commission’s policies across a range of sub- petroleum companies in the world. Many are ject areas. However, other EU advisory bodies household names. also exist which are profiled in this report for reasons we outline. This state of affairs cannot carry on. Advisory group reform should be one of the highest pri- As the Commission grapples with issues of orities for the new European Commissioners, corporate dominance and lack of transpar- who take office in Autumn 2014. They should ency with current Expert Groups (see Box 1), act on the findings of this report and prevent this report highlights yet another fundamen- any company that has broken the law or tal flaw of the wider advisory group system. engaged in gross misconduct from serving within the advisory system for a minimum There would be a public outcry if criminals period of five years, as well as ensure the were found to be advising politicians or civil Commission implements its still-unfulfilled servants in countries across the EU; yet this promises to the European Parliament to re- report outlines how corporations that have form the Expert Group system (see Box 1). been found guilty of serious ethical, financial or environmental misconduct, or who are Although we recognise the basis for inter- being sued for misdemeanours, are actively national law is innocent until proven guilty, advising the Commission. Some may even high profile investigations are not undertaken indirectly gain financially from that advice. lightly and can take years of preparatory work before an official investigation is launched Is not the credibility of the Commission and then take even longer to complete, with called into question if it takes advice from a corporations spending exorbitant sums on company while pursuing that same company lawyers to drag out proceedings and uncover for anti-competitive practices? Or if it seeks any feasible legal loophole to escape on a advice on financial matters from a company it technicality. Therefore, by suspending any has just fined millions of dollars for financial company actively under investigation by the impropriety? These are very real cases — and Commission or EU regulators, law enforce- there are many more. ment agencies, or regulators of member states until the case is resolved, the Commission The ten companies profiled in this report can furthermore help protect the integrity of have been found guilty of misconduct, been the advisory system. involved in lengthy investigations, been heav- 4 introduction crooked counsel The examples presented in this report may a way of formalising reform of the advisory just be the tip of the iceberg. If this problem system. How this might be achieved is out- is to be seriously addressed and institutional- lined in the recommendations at the end of ised, then a ‘blacklisting’ system is needed as the report. Who advises The Commission? Compared to many national governments, the preventative measures such as breaking up European Commission has a relatively small banks that were ‘too-big-to-fail’. administrative staff. This means it relies on outside “experts” in drafting policy proposals Unfortunately, despite strong reform efforts and legislation. One of the main routes for by MEPs and promises from the Commission this advice is via the Commission’s Expert (see Box 1), Expert Groups continue to be Group system, which is the Commission’s dominated by industry.5 For example, recent most frequently used consultation method.2 research published in November 2013 by the Alliance for Lobbying Transparency and The Commission describes Expert Groups Ethics Regulation (ALTER-EU), found that in as “consultative bodies that advise the the Commission’s Directorate General (DG) Commission on the preparation of legislative for Taxation and Customs Union almost 80% proposals and policy initiatives, the imple- of all stakeholders appointed in the preceding mentation of legislation, programmes and year (excluding government representatives), existing Union policies, and the preparation represented corporate interests.6 Given how of delegated acts.”3 sensitive the issue of tax and tax avoidance is across Europe, this dominance is both sur- These groups are powerful players in the prising and worrying. policy-making and legislation process. There are between seven and eight hundred Expert Groups, operating in over 30 policy areas, such as research and development, the environ- Box 1 ment, enterprise and industry, and financial regulation. Many of the most politically and The baTTle for experT economically significant Expert Groups have Group reform traditionally been dominated by industry. Reform of the European Commission’s industry-dominated For example, following the economic crash of Expert Groups has been painfully slow, despite pressure from the 2008-09, the Commission formed an Expert European Parliament. This lack of progress led Members of the Group headed up by the well-known banker European Parliament (MEPs) to freeze the Commission’s Expert Group budget in November 2011, giving four conditions for it to be Jacques De Larosière called the “High-Level unfrozen: Group on Financial Supervision in the EU”, 1. An end to industry dominance; which was dominated by the very same fi- 2. No lobbyists allowed to sit in a group as an independent expert; nancial institutions that had caused the crisis 3. Public calls for applications; in the first place — Goldman Sachs, Lehman 4. Full transparency. Brothers, BNP Paribas, and Citigroup.4 Unsurprisingly, the group’s recommenda- However, despite the Commission promising to adhere to these rules in exchange for lifting the budget freeze, research by ALTER- tions, which then shaped the Commission’s EU shows that many politically and economically important groups response to the crisis, never questioned the created since the budget lifting continue to be dominated by

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