THE WAY FORWARD: CONCLUSIONS AND POLICY RECOMMENDATIONS

Enhancing the risk assessment methodologies, policy procedures and measures aimed at preventing corruption, state capture,¹³⁹ illicit enrichment, and illicit finance¹⁴⁰ could be achieved only through the cooperation between the public bodies, the civil society, investigative media and international partners. In particular, the use of big data could facilitate the identification and sanctioning of integrity breaches in the distribution of public procurements, state aid, concessions, strategic investments, and EU funds. Thus, the following key policy recommendations are in order:

Coherent checking procedure of asset declarations

The checking procedure of the asset declarations should be clarified in detailed internal rules and/or regulations.

• First, the relevant authority should check if the asset declarations are submitted on time by the public servants.

• Second, the anti-corruption authorities should set up a body or department dedicated fully to the detailed check (“lifestyle audit”) of asset declarations (not just their gathering). It should verify not only the reported information but whether there are hidden or undeclared assets, including abroad and/or held by friends and (extended) family members. Ideally, the procedure should ascertain the origin of assets.

• Third, this body it should utilize a risk assessment and checking procedure, based on big data and a set of red flags and indicators. In the countries where more than one body performs the checks, this procedure should be unified across all of them. An example of a comprehensive list of risk indicators for checking asset declarations is presented in the text above, based on analyses published by the World Bank,¹⁴¹ Council of Europe,¹⁴² and OECD.¹⁴³

• Fourth, the body should perform three types of checks: a random sample undergoing detailed check / audit (e.g.,  5% or 10%  of the civil servants  in a public body), checks of priority/risk groups (based on the big data  risk analysis), as well as such triggered by anonymous signals from third parties (whistle-blowers, CSOs, media articles, etc.). This would increase the risk of detecting irregularities and decrease the sense of impunity.

• Fifth, strong cooperation among all relevant  bodies  (anti-corruption, tax, finance, money laundering, prosecution, etc.) should be established, as well as the inter-connection of all available databases – a key  for     the investigation of ill-gained wealth. The data declared in the asset declarations should be cross-checked with the data from other public registers (national and international) according to national and EU data privacy rules,¹⁴⁴ and if relevant – with private sources (professional bodies, social media, etc.). This would also prevent the practice of asset declarations to include “personal assessment” of the value of the assets, or their incorrect classification.

• Sixth, there should be a possibility to submit the issue to the prosecution or to other relevant authorities, and administrative, criminal (and if relevant – civil) procedures to be initiated by multiple bodies or stakeholders. The investigations should not omit the issue of how someone has obtained property before taking office.

• Seventh, the SEE-9 countries should cease the practice of removing asset declarations from public registers shortly after the end of the public servant’s term in office.

Improving the legal base in terms of asset disclosure

The legal base should oblige police, customs officers, senior managers, directors and board members of state-owned enterprises, military personnel, members of political parties (e.g. the ones outside of the members of parliament and receiving subsidies), and where relevant – members of religious groups – to also submit asset declarations. However, the increase of the number of collected asset declarations should be accompanied by efficient checking and sanctioning procedures, as well as use of big data and red flags to identify a smaller sample of risk groups to be checked. The legal specifications regarding the post-employment restrictions for PEPs, the receipt of gifts, as well as the allowed types of additional income for public servants, should be clarified in detail. The legal base could be improved by obliging PEPs to disclose not only their majority shares in a company, but also their assets held in that business.

Transparency and digitalization of asset declarations and related registers

Stronger efforts are needed to ensure data availability and transparency through digitalization of information. The countries from SEE-9 should not allow asset declarations to be submitted as hand-written photocopies, nor to be scattered on the websites of different public bodies. The relevant bodies should not retroactively change the asset declarations, so that a detected irregularity no longer exists. There is also a need to establish machine-readable public procurement and corporate databases, as well as databases of sanctioned legal and physical persons, which can be downloaded in bulk. The databases should include information on ultimate beneficial ownership and financial data at company level. It is also recommended that all countries establish procedures for tracing transactions with crypto currencies, and harmonize their approaches towards the taxation of crypto assets, as suggested by the European Parliament.¹⁴⁵

Improving the data publication related to public procurement

While in general the data related to public procurement is available and on average is of good quality, there are further steps needed, particularly in the publication of the call for tenders. If a contracting authority does not make a call for tenders publicly available, only connected bidders will know about the tendering opportunity. This corruption technique is strongly associated with using non-open procedure types, but it can also be utilized independently. The publication of a call for tender should be monitored and implemented for all procedure types.

Inter-connecting public registers

A core prerequisite for the efficient use of big data is for all SEE-9 countries to interconnect all public registers. This is a two-step process – first, the primary (basic) registers should be connected with each other: physical persons register (including civil status and family members), business (legal entities) register, and the property register. Second, all remaining registers should be joined one by one.¹⁴⁶ If possible, databases of professional bodies and bank accounts should also be included or a procedure for information requests should be established.

Based on data from all interconnected public registers, the governments from the SEE-9 countries, supported by the civil society, are recommended to elaborate electronic platforms for detecting corruption risks and patterns of abuses. Such platforms could benefit from the red-flags and indicators, tested in the framework of the R2G4P initiative and presented in the current and future reports. The next and final step would be to enforce the International Treaty on Exchange of Data for the Verification of Asset Declarations.¹⁴⁷

Introducing data-driven analysis of public procurement and asset declaration

Use of big data for early warning and risk analysis should be developed and regularly used by the relevant public bodies, jointly with the civil society, international bodies and investigative media. The digitalization and consequent big data analysis could be utilized in all areas – public procurement, strategic investments and distribution of state aid, checking of asset declarations, measuring illicit financial flows, etc.

• In regard to asset declarations – big data could allow a set of red-flags to warn if illicit wealth has potentially been acquired and/or transferred to (distant) relatives or friends (against no or low compensation), and if it has been hidden in a complex chain of subsidiaries and mother companies (incl. use of shell companies and straw persons). Such approach could alleviate the high workload of the anti-corruption bodies.

   

   

• In regard to company behaviour – big data could reveal if the companies linked to politically exposed persons have higher turnover, market position (possible monopolization), profit per employee, etc. – compared to the companies without political ties in the same sector. In addition, big data calculations will show if the operational assets and equipment value as a share of the profit are lower in politically exposed companies, thus indicating risk of irregular sub-contracting practices on the procurement market.

   

   

• In regard to safeguarding public procurement integrity, it is recommended that government bodies, supported by civil society, set    up systems to regularly monitor red flags such as large shares of single bidding, buyer dependence on supplier, company tax haven registration, too short of a submission or decision period, a missing call for tender,    or use of restrictive procedure types. This could be best achieved using an interactive dashboard which contains not only the source data, but also includes performance and risk indicators, and warns the user about data quality shortcomings and analytical challenges (see Opentender.eu). Alternatively, the central procurement platform publishing calls for tenders and contracts can adopt the system of automated calculations of red flags.

   

   

Improving public procurement legal base and reducing the use of non-competitive procedures

In parallel to the use of red-flags, the public procurement legal base should also fully revert to its pre-COVID state, abolishing all “temporary” emergency procedures (with special focus on reducing the share of single bidder contracts and the number of direct awards). Although the use of non-open procedures does not necessarily aim at corruption rent extraction – institutions might use it to decrease the administrative burden by avoiding a difficult procedure – it certainly weakens competition and transparency and hence increases the risk of corruption. The number of such procedures should be decreased where possible with introduction of additional monitoring mechanisms.

Improving tender design by allowing more time for deciding on the winning bid

Lengthy decisions with corruption risks concentrated within a small number of days centred around some parts of the decision-making can be a signal of over- burdened bureaucracy and lack of staff assessing the applications. Increasing the number of people working on procurement documents could improve the overall speed of decision-making period, as well as the quality of the assessment. All parts of the procurement procedure, from the tender announcement to the decision on the winning bid should ideally be allowed the maximum foreseen time by the relevant regulations. Artificially shortening some of the decision-making periods, for example by placing them around major holidays or invoking emergency regulations, is typically an indication of strong corruption risks.

Improving competition in public procurement

Objective bid evaluation criteria, matching tender sizes to the market capacity and splitting large tenders into smaller lots can potentially boost the level of competitiveness in public procurement. While a high number of bidders should not be pursued at all cost, lowering the incidence of tenders with no to very little competition is a safeguard for value for money in public procurement¹⁴⁸. Moreover, it can be observed that politically connected companies are more likely to get a contract without any competition, which can be a signal either of a tailored tender specification, or of non-competitive market conditions under which it is easier for a buyer to approach connected bidders.

Efficient punishment

One of the most worrying issues frequently raised both by civil society, and by EU-level and international bodies is that most criminal charges against public officials are dismissed or are replaced with looser administrative sanctions, especially when higher-level political officials are concerned. At the same time, the relatively small fines do not encourage submission of accurate asset declarations or the full compliance with the law. Thus, it is important for policymakers to ensure that the size and severity of penalties is high enough (dismissal, seizure of assets, imprisonment), prosecution is more efficient, and the final penalty decisions are published online. Furthermore, the SEE-9 countries should set up a mechanism for removing immunities, especially for criminal proceedings.