For the full report go to:
<http://www.cmi.no/publications/file/?2693=corruption-in-serbia-2007>

**Corruption in Serbia 2007:**

**Overview of Problems and Status of Reforms**

Marijana Trivunović

Vera Devine

Harald Mathisen

# 

Draft report

May 11^th^ 2007

# 

![](media/image1.jpeg){width="3.0520833333333335in" height="0.71875in"}

Table of Content

[1. Executive Summary 3](#executive-summary)

[2. Introduction Error! Bookmark not
defined.](#__RefHeading___Toc166606585)

[3. Corruption in Serbia Error! Bookmark not
defined.](#__RefHeading___Toc166606586)

[3.1 Data, perceptions and experience of corruption **Error! Bookmark
not defined.**](#__RefHeading___Toc166606587)

[3.2 Horizontal Issues -- Root Causes and Implications for Reform
**Error! Bookmark not defined.**](#__RefHeading___Toc166606588)

[3.3 Types of Corruption in Serbia **Error! Bookmark not
defined.**](#__RefHeading___Toc166606589)

[3.3.1 Political Corruption **Error! Bookmark not
defined.**](#__RefHeading___Toc166606590)

[3.3.2 Corruption in the Public Administration **Error! Bookmark not
defined.**](#__RefHeading___Toc166606591)

[3.3.2 Corruption in the Justice System **Error! Bookmark not
defined.**](#__RefHeading___Toc166606592)

[3.3.3 Corruption in the Process of Doing Business **Error! Bookmark not
defined.**](#__RefHeading___Toc166606593)

[3.3.4 Corruption and the Media **Error! Bookmark not
defined.**](#__RefHeading___Toc166606594)

[4 Responses Error! Bookmark not defined.](#__RefHeading___Toc166606595)

[4.1 General Context **Error! Bookmark not
defined.**](#__RefHeading___Toc166606596)

[4.1.1 Strategic Framework 1: Long-term Perspective of European Union
Membership **Error! Bookmark not
defined.**](#__RefHeading___Toc166606597)

[4.1.2 Strategic Framework 2: Poverty Reduction Strategy Paper (PRSP)
**Error! Bookmark not defined.**](#__RefHeading___Toc166606598)

[4.1.3. Membership in International Organisations and International
Obligations **Error! Bookmark not
defined.**](#__RefHeading___Toc166606599)

[4.2 Implicit Responses **Error! Bookmark not
defined.**](#__RefHeading___Toc166606600)

[4.2.1 Parliamentary Oversight **Error! Bookmark not
defined.**](#__RefHeading___Toc166606601)

[4.2.2. Local Government/Decentralisation **Error! Bookmark not
defined.**](#__RefHeading___Toc166606602)

[4.2.3 Reform of the Law Enforcement System **Error! Bookmark not
defined.**](#__RefHeading___Toc166606603)

[4.2.4 Public Administration Reform **Error! Bookmark not
defined.**](#__RefHeading___Toc166606604)

[4.2.5 Public Finance System **Error! Bookmark not
defined.**](#__RefHeading___Toc166606605)

[4.2.6 Service Delivery **Error! Bookmark not
defined.**](#__RefHeading___Toc166606606)

[4.2.4 Business Environment **Error! Bookmark not
defined.**](#__RefHeading___Toc166606607)

[4.3 Explicit Responses **Error! Bookmark not
defined.**](#__RefHeading___Toc166606608)

[4.3.1 Politicians/Political Parties **Error! Bookmark not
defined.**](#__RefHeading___Toc166606609)

[4.3.2 Council for the Fight against Corruption **Error! Bookmark not
defined.**](#__RefHeading___Toc166606610)

[4.3.3 Anti-corruption Strategy, Action Plan, and the yet-to-be
established Anti-corruption Body **Error! Bookmark not
defined.**](#__RefHeading___Toc166606611)

[4.3.4. Civil Society **Error! Bookmark not
defined.**](#__RefHeading___Toc166606612)

[5. Looking Ahead Error! Bookmark not
defined.](#__RefHeading___Toc166606613)

[5.1 Emerging Lessons **Error! Bookmark not
defined.**](#__RefHeading___Toc166606614)

[5.2. Implications for Advancing Anti-corruption Reforms in Serbia
**Error! Bookmark not defined.**](#__RefHeading___Toc166606615)

[5.3 Recommendations **Error! Bookmark not
defined.**](#__RefHeading___Toc166606616)

#  

# 1. Executive Summary

Corruption is one of the most important problems facing Serbia. While
there are some indications that corruption may have become less rampant
in recent years, available evidence suggests that corruption levels are
very high, while trust in key institutions is low.

Serbia has yet to consolidate its own statehood - it has only recently
separated from Montenegro, and is currently confronting the challenges
of Kosovo's final status. It is a deeply divided society, experiencing a
political deadlock between reformist and anti-reformist forces since
2003. This deadlock has taken the reform process hostage. Overcoming it
is key to further progress toward EU accession.

Serbia is a country in transition. It is important to tackle corruption
systematically to avoid its becoming institutionalised. However, while
good news and perceptions are thin on the ground, we find that the
country is on a positive track in several areas: there are signs of
greater control of public procurement, conflict of interest has begun to
be regulated, access to information and transparency of the government
institutions have improved significantly, and the capacity of
enforcement agencies to investigate and prosecute organised crime and
corruption is increasing. The burden of rules and procedures has eased
for private business, cutting opportunities for corruption.

However, the political nature of the problem is constant, and more
ambitious reforms are often effectively blocked by entrenched elites. A
lasting impact on corruption levels cannot be achieved without sustained
political will at the highest levels of government.

An assessment of the current state of corruption in Serbia reveals many
problems common in all post-communist states: corruption arising from
large, inefficient and non-merit based bureaucracies; a large and
uncompetitive state sector and an insufficiently developed market
economy, and depleted budgets struggling to finance service delivery to
citizens.

However, some forms of corruption are specific to Serbia. They originate
in the country's recent legacy of authoritarianism and war, the
confrontation with which is the basic source of current political
divisions. Corruption is also influenced by Serbia's particular
institutional design and weaknesses: the constitutional and electoral
set-up consolidates power with political party leaderships and the
executive branch, while a weak parliament and judiciary branch are
unable to provide the necessary checks and balances.

Sectors which are typically considered to be the most vulnerable to
political or 'grand' corruption are those with significant financial
transactions and correspondingly the greatest potential rewards. These
include public procurement, privatisation, and other large budgetary
expenditures such as, in the case of Serbia, the National Investment
Plan. Indeed, a number of scandals have surrounded some of the large
privatisations in Serbia. However, few have produced conclusive evidence
of corrupt transactions, and other studies claim that the privatisation
to date has taken place by and large observing the rules. The crux of
the problem is in the immense *potential* for corruption and fraud in a
system lacking adequate control. Similar vulnerabilities exist in the
process of restructuring and/or bankruptcy of state-owned companies. The
2006 arrest of one of the groups benefiting from such transactions
constitutes one of the greatest successes -- and demonstrates the
improved capacity to fight economic crime - of the Serbian police.

While public procurement is still an area vulnerable to abuse, there
have been improvements. Legislation which is broadly in line with
international standards is being implemented. The work of the Public
Procurement Office succeeded in reducing the number of non-competitive
tenders to levels comparable with international good practice. However,
opportunities for corruption remain -- through deliberate
mis-interpretation of provisions exempting purchases from the
competitive tender procedure; or in later stages of the process, such
contracting and the execution of the agreements.

The absence of a rigorous audit system exacerbates the weaknesses not
only of the new public procurement regime. There are many serious
inadequacies in the mechanisms to oversee the use of public funds.
Serbia has neither effective internal nor external audit of budgetary
funds. A Supreme Audit Institution (SAI), although foreseen by law to
begin functioning in May 2006, has not yet been established. The lack of
effective oversight and a detailed programme-based budget, taken
together with the existence of too many extra-budgetary funds, expose
numerous opportunities for corruption. Reform of the budget system,
including fiscal decentralisation, is part of ongoing long-term
initiatives that will take years to take effect in the best of
circumstances. But there have been widely criticised setbacks -- such as
the establishment, in 2006, of the National Investment Plan -- which
disappoint hopes that a public expenditure system is firmly on the right
track of reform.

Perceptions and regular media reports of arrests suggest considerable
levels of petty corruption in the public administration bodies. However,
there is insufficient data to support any firm conclusions about trends.
Licensing and inspections' directorates have the biggest impact on
business, and on small and medium-sized enterprises (SMEs) in
particular. Administrative corruption is likewise largely responsible
for the inequity in the access to social services - healthcare,
pensions, and education - hitting the poor and other vulnerable groups
hardest.

There are other opportunities and incentives for corruption across the
public administration: opaque and contradictory rules, excessive
discretion of individual civil servants, non-merit based criteria for
employment and promotion. A Public Administration Reform Strategy
focusing on fiscal decentralisation and civil service reform began to be
implemented in 2005, but results have been modest. Some of the measures,
notably the criteria for selection of higher level appointees and the
system of evaluation and advancement, appear to have the opposite of the
intended effect of attracting and retaining qualified staff. As in some
other sectors, notably the police, the distinct lack of a political
leadership committed to reform has prevented systemic changes and
obstructed a number of ambitious donor projects designed to facilitate
these changes.

The judiciary is perceived as one of the most corrupt institutions in
Serbia. But as in other sectors, due to a lack of reliable data, the
line between corruption within the institution as opposed to its
inefficiency and poor management is blurred. There have been some early
successes in the law enforcement system with the establishment of
special units within the police and prosecution, as well as special
courts to investigate, prosecute, and adjudicate war crimes and
organised crime. But overall, the process of reforming the entire
justice system is progressing too slowly: as in many other countries,
judges tend to be conservative and very resistant to change; prosecutors
and police can be subject to political influence, and their powers can
be used to selectively prosecute political opponents. Although the
Judicial Reform Strategy adopted in 2006 acknowledges all these
problems, it also leaves some questions as to whether they will be
resolved satisfactorily. The appointments of judges and prosecutors are
still viewed as being overtly subject to political influence, which
reinforces scepticism as to the genuine resolve for decisive reform. The
police too, are subject to political influence - exemplified most
vividly by the demotion or reassignment of officers who have been
performing well on politically sensitive cases. Police reform, while
having had a positive start in 2001, has stalled with the last Serbian
government, resisting any major policy changes that would further
professionalize and depoliticize the institution. Some gains have been
made in the fight against organised crime: capacities have increased
through the sustained support of international donors and numerous
technical assistance projects. Remaining problems include poor material
conditions and remuneration, and a lack of investigative capacity
outside the specialised units, and particularly outside of the capital.

In addition to wider reforms of particular sectors, the results of which
will implicitly have an impact on corruption, there have also been a
number of explicit initiatives.

Civil society organisations had been the early bearers of the issue. The
Serbian chapter of Transparency International has been the most
prominent among them with notable expertise and a sustained focus on the
need for systemic reforms. Other initiatives have been rarer and less
systematic, leaving an overall impression of a lack of vibrancy and
interest in the fight against corruption. And rare exceptions
notwithstanding, the media have demonstrated little interest in systemic
issues fundamental in the fight against corruption - focusing instead on
corruption scandals, without follow-through on stories to their
conclusions. The media in Serbia certainly bears some of the
responsibility for the public's undifferentiated perceptions of
corruption at all levels, and perceptions of general impunity for
corruption offences.

It is too early to judge whether the 2004 Law on Free Access to
Information of Public Importance and the Law on State Administration --
obliging line ministries and government institutions to publicise their
work on websites - will have an impact on the quality of media reporting
in the medium to long term. It stands to argue, though, that both laws,
and the work of the Commissioner for Public Information have had a
positive impact on the transparency of the work of the government, and
to a change of culture inside the public administration.

There have also been high-profile measures from the government to
confront the problem of corruption outright. An Anti-Corruption Council
was established in 2001. Conceived as an expert advisory body without
any further reaching competencies, its effectiveness has been minimal.
In addition, a lack of resources, a lack of capacity/knowledge on
anti-corruption issues and approaches, as well as a lack of
responsiveness from the government it was intended to advise further
undermined the Council's efficiency. Over time, the Council has moved to
publicly criticise government policies and to bring specific corruption
cases into the public eye. However, the lack of access to confidential
documentation and the lack of methodological rigour to produce
convincing analyses have further undermined its reputation. The cost of
failure of the Council are possibly even greater: there is reason to be
concerned that its approaches only further increase public cynicism and
disillusionment with all public institutions.

Lack of capacity and competencies is a problem facing also the Committee
for Resolving Conflicts of Interest, a body in charge of overseeing the
implementation of the 2004 Law on Conflict of Interests. The Law
restricts public officials from having positions or other interests that
may be incompatible with the public interest they are charged with
representing; it also provides for a declaration of assets, and for
rules on gifts received in the performance of official duties. The
implementation of the law gives reason for cautious optimism: the number
of officials submitting asset declarations and resigning from functions
that have been ruled as incompatible is increasing. The full
implementation of the law would be greatly strengthened by improving the
enforcement body's capacities to actually examine the veracity of the
financial declarations. There also need to be more dissuasive sanctions
for non-compliance with the rules. Without more effective enforcement
there is a risk that the process will be ultimately discredited.

Another explicit anti-corruption measure - the attempt to regulate the
financing of political parties and electoral campaigns, including the
provision of public funds for these purposes - has been a major
disappointment. Not only are there a number of gaps, inconsistencies,
contradictions, and incompatibilities in the 2003 Law on the Financing
of Political Parties itself: the entire framework for its enforcement is
inappropriate. The situation is all the more serious in that parties are
awarded public funds without proper oversight over how those funds are
actually spent. There has been insufficient pressure in Serbia to
urgently close the significant gaps in existing campaign/party finance
rules.

A National Strategy for the Fight against Corruption was adopted in late
2005 and translated into an Action Plan in late 2006. The lack of real
political will to systematically and decisively address corruption can
be seen by the wasting away of this document, the implementation of
which had been defined too vaguely in the first place, with
overwhelmingly unrealistic timelines, and left largely the
responsibility of a yet-to-be-established Anti-Corruption Agency.

The initial proposal for the Anti-Corruption Agency projects - with an
estimated annual operating cost of over 10 million Euro and some 150
staff - an enormous and very expensive body. Its competencies are vast,
and include those of the existing Committee on the Resolution of
Conflict of Interest. There are obvious concerns of whether such a body
could realistically perform all the tasks that it would be assigned.
Another concern is the time it might take to develop its operational
capacities. International experience also suggests that it would be
prudent to review the plan of concentrating so many important
competencies in one institution rather than across multiple centres of
integrity. But while these technical questions are serious, the main
concern is that without demonstrated political will, the Agency could
amount to nothing more than expensive window dressing for the government
to be seen -- at the national level, but, more importantly,
internationally -- as tackling corruption, when in fact more systemic
reforms are being stalled in the relevant line ministries.

Resulting from the above, there are several important lessons for future
anti-corruption efforts in Serbia.

-   There are structural factors, particularly the dominance of
    political party leaderships and the concentration of power in the
    executive branch that greatly exacerbate certain forms of
    corruption, and potential efforts to combat corruption in Serbia;

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-   Serbia continues to exist with enormous political uncertainties that
    places a number of limitations and incentives on the key actors;
    these greatly influence the government's as well as individual
    politicians' ability to pursue meaningful reforms;

-   There is very little real understanding about how to effectively
    fight corruption;

-   There is little interest, both within the government, but also civil
    society, in participating in and taking responsibility for the fight
    against corruption; the preference is to let someone else do it;

-   There is a lack of hard data and reliable analyses on corruption
    that makes it difficult to design and implement targeted reforms;

-   Small gains made to date need to be defended from neglect, political
    influence, or well-intentioned but inadequately considered reform
    proposals with potentially serious negative consequences;

-   Key institutions and processes either vulnerable to corruption
    (and/or political influence), or key in the fight against
    corruption, need to be closely monitored and acted upon, as
    necessary.

Future projects or donor advocacy should focus on:

-   Instrumentalising other international commitments;

-   Protecting the gains made;

-   Supporting by all available means the sustainable establishment of a
    Supreme Audit Institution;

-   Supporting a more strategic thinking on anti-corruption;

-   Targeted capacity building in anti-corruption;

-   Supporting targeted research on corruption;

-   Integrating anti-corruption measures in all reform initiatives.