Project HOME/2010/ISEC/AG/081 Prevention of fraud, corruption and bribery committed through legal entities for the purpose of financial and economic gain Comparative Overview 26 October 2012 EUROPEAN COMMISSION Directorate-General Home Affairs Directorate A: Internal Security Unit A4: Financial Support – Internal Security Contents 1. INTRODUCTION 1 General Overview 1 Overview of the project 2 The main theme 3 Aims and purpose of the project 4 Aims and purpose of the comparative research 5 Methodology of the research 5 1.1.1. The Questionnaire 6 1.1.2. PART A of the Questionnaire 6 1.1.3. PART B of the questionnaire 7 1.1.4. PART C of the questionnaire 7 2. THE INTERNATIONAL LEGAL FRAMEWORK: INTRODUCTION 9 International legal instruments combating corruption 10 EU legislative initiatives with regard to combating and preventing corruption 11 EU and international legal instruments combating Organised crime: first steps 14 EU and international legal instruments combating organised crime: new legal basis and current developments 15 A specific issue: perpetrators of economic and financial crimes 17 3. PART A: THE LEGAL FRAMEWORK OF CORRUPTION, BRIBERY AND ORGANISED CRIME COMMITTED BY OR THROUGH LEGAL ENTITIES 19 Corruption committed in the private sector 19 3.1.1. Criminalisation of private sector corruption 19 3.1.2. Applicable penalties and sanctions 22 3.1.3. Liability of legal persons 24 3.1.4. Applicable penalties 26 3.1.5. Jurisdiction 29 3.1.6. Statutory limitations 31 3.1.7. Overview and analysis of the adequacy of the enforcement of private sector corruption 31 Bribery of public officials by legal entities 33 3.1.8. Criminalisation of bribery of public officials 33 3.1.9. Ap`plicable Penalties 35 3.1.10. Liability of legal persons 36 3.1.11. Applicable penalties 37 3.1.12. Jurisdiction 38 3.1.13. Statutory limitations 40 3.1.14. Overview and analysis of the adequacy of the enforcement of bribery of public officials by legal entities. 41 Organised crime committed in the framework of legal entities 42 3.1.15. The definition of organised crime 42 3.1.16. Criminalisation of participation in a criminal organisation or conspiracy 43 3.1.17. Penalties and sanctions 45 3.1.18. Applicable penalties. 46 3.1.19. Liability of legal persons 47 3.1.20. Applicable penalties 48 3.1.21. Jurisdiction 49 3.1.22. Overview and analysis of the adequacy of the enforcement of organised crime committed in the framework of legal entities 51 4. PART B: APPLICATION OF PREVENTIVE STRATEGIES AND MEASURES 53 Corruption and bribery 53 4.1.1. Establishment of national preventive policies with regard to corruption in the private sector and bribery 53 4.1.2. Adequacy and effectiveness 57 4.1.3. Exchange and analysis of information on prevention of corruption and bribery 57 4.1.4. Involved national and international authorities 59 4.1.5. Establishment of special training programs 63 4.1.6. Accounting misconduct 64 4.1.7. Cooperation between public authorities and private entities 66 4.1.8. Development of ‘codes of conduct’ 68 4.1.9. Disqualification of persons in a leading position 69 4.1.10. Awareness-raising programs 70 4.1.11. Abolishment of tax-deductibility of expenses constituting bribes 71 4.1.12. Protection from retaliation or intimidation for witnesses 72 Organised crime 72 4.1.13. Establishment of preventive policies and their main elements 72 4.1.14. Exchange of information 75 4.1.15. Involved national and international authorities 77 4.1.16. Establishment of special training programs 81 4.1.17. Cooperation between the public authorities and the private sector 82 4.1.18. Disqualification of persons in a leading position 83 4.1.19. Measures to encourage pentiti 83 4.1.20. Protection of witnesses 84 5. PART C: INVENTORY OF BEST PRACTICES 87 Contact points 87 Whistle-blowers 88 Interconnection of business-registers and public records 91 Sector specific best practises: prevention of corruption and organised crime in the area of illegal trafficking of waste 95 Sector specific best practises: prevention of corruption and organised crime in the area of public procurement 103 Sector specific best practises: prevention of corruption and organised crime in the area of Emission Trading 108 6. SUMMARY 111 Abstract 111 Summary of main results 111 6.1.1. Legal measures 111 6.1.2. Results: application of preventive strategies and measures 113 6.1.3. Results: inventory of best practices 114 APPENDIX 115 Concluding remarks made by Professor prof.dr.dr.h.c. Cyrille Fijnaut 115 List of abbreviations 116 1. Introduction General Overview In 2010 the European Commission1 issued the targeted Call for Proposals with regards to “Financial and Economic Crime”2 under its programme "Prevention of and Fight against Crime" 2007-2013. In 2007 the Council took the Decision to start this specific programme.3 It aims at realising four main objectives, namely: (a) to develop methods to prevent and fight crime among others through the work of public-private partnerships and by means of best practices; (b) to promote coordination among law enforcement agencies; (c) to promote and develop best practices for the protection of and support to witnesses; and (d) to promote and develop best practices for the protection of crime victims.4 The T.M.C. Asser Instituut5 applied for an action grant with a project proposal titled: “Prevention of fraud, corruption and bribery committed through legal entities for the purpose of financial and economic gain“. The application was submitted in August 2010 together with the Polish Institute of International Affairs (PISM)6 in Warsaw as beneficiary partner and the Dutch Ministry of Security and Justice7 as associate, non-beneficiary partner. The project proposal was awarded with an action grant by the Commission in August 2011 and activities started shortly thereafter. The project aims at the implementation of one of the priorities of the Commission's programme, namely "Prevention and fight against corruption, development of anti-corruption policies". More specifically, it envisages contributing to the prevention of fraud, corruption and bribery committed by and through legal entities. Legal entities were expressly chosen as the main focus of the project. They play the most dominant role in the overall economy. Obviously they are established for the purpose of financial gain but can be misused making illegal profits through fraud and corruption. Such malpractices, e.g. VAT fraud, are also often cross-border in nature and take advantage of 1 Directorate-General Justice, Freedom and Security, Directorate F: Security, Unit F4: Financial support – Security. Under the Barroso II Commission this Directorate-General was split up in two different ones: Home Affairs and Justice. The responsibilities for this program were taken up by the new Directorate-General Home Affairs, more specifically its Directorate A: Internal Security, Unit A4: Financial Support – Internal Security. 2 The full text of this Call is available through the website link: http://ec.europa.eu/home- affairs/funding/isec/call_10134/tc3_call_2010_en.pdf. The deadline of the Call was 18 June 2010. 3 Council Decision 2007/125/JHA of 12 February 2007 establishing for the period 2007 to 2013, as part of General Program on Security and Safeguarding Liberties, the Specific Program ‘Prevention of and Fight against Crime’, OJ L 58/7, 24.2.2007. 4 Ibid., article 3 ‘Themes and specific objectives’. Paragraph 3 provides that: “The Programme does not deal with judicial cooperation”. 5 T.M.C. Asser Instituut (TMCAI) in The Hague (NL) is a foundation established in 1965 by the law faculties of the Association of Dutch universities. Since its foundation, the TMCAI has developed into an academic inter-university institute in the field of International Law, cooperating closely with and supporting the Dutch and other universities. The academic fields covered by the Institute are Private International Law, Public International Law, the Law of the European Union, International Commercial Arbitration, International Humanitarian Law, International Criminal Law and International Sports Law. The TMCAI's mission is to initiate, support and realise innovative, scholarly research and postgraduate education activities, preferably on an inter-university basis, and be instrumental in initiating and facilitating other activities which are of importance to disseminating in-depth and broad knowledge of International and European Law in the Netherlands and beyond. See http://www.asser.nl. 6 The Polish Institute of International Affairs (PISM) is a leading and independent think-tank that conducts original, policy-focused research. PISM provides advice to all branches of government and contributes to wider debates on international relations in Europe and beyond. PISM also publishes books and journals, and houses one of the best specialist libraries in Central Europe. Situated in between the world of policy and independent expertise on international affairs, PISM promotes the flow of ideas that inform and enhance the foreign policy of Poland. See English version of PISM’s website: http://www.pism.pl/en . 7 See English version of the Ministry’s website: http://www.government.nl/ministries/venj (retrieved June 2012). 1 opportunities offered by the European internal market. This leads to negative effects for the EU internal market and the financial system of the EU Member States. Differences in civil, administrative and criminal law and regulations of the Member States make it more difficult to tackle such cross-border malpractice. The application of common preventive methods can enhance the effectiveness of efforts aimed at tackling these phenomena. Improving exchange of information on private legal entities by interconnecting business registers in the Member States is a perfect example of such a preventive strategy. The following paragraphs of this chapter deal with the overall design of the project, its main objectives and the activities needed to achieve those objectives and the ensuing results.