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Highwire - Czech Republic 

Managing Risks in High Growth Markets
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Public sector procurement remains the key bribery and corruption risk in the Czech Republic. KPMG Forensics’ Central European chief, Jimmy Helm, is based in Prague. He has seen petty corruption decline: “Traffic policeman no longer harass foreign drivers for bribes and facilitation payments are diminishing.  But ’grand corruption’ by politicians and senior officials is at serious levels. The good news is that this has provoked a serious effort to tackle public sector abuses.’

 

Many of the problems are attributed to the legacy of authoritarian communist rule, which lasted from 1948 to 1989.

 

”The old way was to work around the system – for many it was the way to survive during those years. With the advent of a free market system, a flawed privatisation program and other ’get rich quick schemes‘, that old mentality of ’bucking the system‘ has continued to flourish. As with all new democracies, there was an immediate need to overhaul the old structures, and to purge the past.

 

Consequently, experienced police officers were purged because they were tainted by communism. Specialist anti-corruption units were founded and then wound up as each succeeding government sought to stamp its authority on the public sector. Top public officials have no job security and are often replaced when governments change.”

 

Public procurement is particularly vulnerable: ”Paying an extra 10-15% to win a state or municipal contract is common,” says Helm ”For example, road building costs are amongst the highest in Europe. The current government, elected in 2010 when corruption was a major election issue, appeared to be taking a firm line. Now that very government is on the brink of collapse, itself racked by recent corruption scandals.”

 

Nevertheless, government departments have issued a raft of tenders for financial investigatory work and anti –bribery and corruption initiatives, and Parliament has introduced new rules for dealing with public procurement. Recent legislative proposals will hopefully introduce corporate liability in line with the OECD Convention.

 

Helm confirms international pressures have helped drive the fight back, including pressure by foreign governments, local chapters of foreign Chambers of Commerce in the Czech Republic and active local and international NGO’s.

 

“Recent high profile settlements under the FCPA have also caused a wave of concern amongst western firms, and the introduction of the UK Bribery Act will no doubt add to this melee,” says Helm. “Foreign business is now agitating for a level playing field and is leading a campaign for corporate reform, including self reporting.

 

“We are also seeing a rapid growth in supplier selection diligence and monitoring with more companies insisting on third-party audits.  All of which makes corporate intelligence a growth area.

 

Helm observes that “the ’middlemen‘of old are under scrutiny and companies are less likely to use them or other informal lobbyists for fear of scandal. Overseas investors need impartial guides. Fortunately we can draw on a lot of high quality public information, a Czech media which is very active in investigating and exposing corruption, and a flourishing NGO movement.”

 

Contact

Jimmy Helm

 

Partner
KPMG in Central and Eastern Europe

 

+42 02 2212 3430
jhelm@kpmg.cz

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