Communication from the Commission to the Council and the European Parliament on a Union Policy against corruption
Date: 1997-05-21
Institutions: European Commission
Subjects: corruption, fraud against the EU, intergovernmental cooperation (EU), public morality

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels,  21.05.1997 
COM(97)  192  final 

COMMUNICATION FROM THE COMMISSION 
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT 

ON 
A  UNION POLICY AGAINST CORRUPTION 

CONTENTS 

Part I:  INTRODUCTION 

1.1 

1.2 

THE NEED FOR A STRONGER EUROPEAN  UNION POLICY AGAINST CORRUPTION 

THE DIMENSIONS OF CORRUPTION 

Part H: FIGHTING CORRUPTION  IN SPECIFIC POLICY AREAS 

II. 1 

CORRUPTION AND CRIMINAL LAW 

II. 2 

TAXDEDUCnBILITY 

THE  SINGLE MARKET AND OTHER INTERNAL POLICIES 

Public Procurement Directives 
Financial  Transactions 

11.3 
II. 3.1 
11.3.2 
II.3.2.a  Company accounts 
II.3.2b  Financial institutions 
II. 3.3  Other measures and policies 
II. 3.3. a  Blacklisting 
11.3.3 .b  Commitments against  corruption 
11.3.3c  Civil remedies 
II.3.3.d  Whistle blowers 

EXTERNAL ASSISTANCE AND  CO-OPERATION 

11.4 
n.4.1  Preventing Corruption in Third Countries Benefiting from EC  Assistance 
n.4.2  Anti-corruption  programmes 
n.4.3 

"Good governance" and anti-corruption clauses 

II. 5 

CO-OPERATION IN INTERNATIONAL FORA 

ANNEX  1 

INTERNATIONAL INITIATIVES 

/ 

Part I:  INTRODUCTION 

M 

Tf  IL NEED FOR A STRONGER EUROPEAN  UNION POLICY AGAINST CORRUPTION 

1. The  purpose  of this Communication  is to  set  out  the  main  elements  of  a  comprehensive  Union 
Policy against  Corruption.  The need to combat  corruption  at EU  level has already been  recognised 
and  a  number  of  initiatives  have  been  taken  which  are  relevant  to  the  fight  against  corruption. 
However  these  do  not  address  all  concerns  and  were  not  been  part  of  an  integrated  approach.  A 
number of developments point to the need to take further  and more co-ordinated  action: 

•  The  European  Parliament  in  its  resolution  on  corruption  of  15 December  1995  (rapporteur 
Mrs  Salisch) called  on the  Commission  as well the  Council  and  Member  States,  to  take  action 
against corruption  in a wide variety of areas. That report, which was not restricted  to  corruption 
affecting  the  ECs' financial interests,  emphasised  the  threat  posed  by  corruption,  its  links  with 
organised crime and the need for a Union policy on corruption. 

•  The  report  of  the  High  Level  Group  on  Organised  Crime  commissioned  by  the  European 

Council stresses the importance of enhancing the fight against  corruption. 

•  The  question  of  corruption  is  currently  under  discussion  in  a  significant  number  of 
international  fora  including  the  G7,  OECD,  Council  of  Europe,  United  Nations  and  the 
World  Trade  Organization  (see  Annex  1).  The  outcome  of  these  discussions  will  have 
implications for the Union and  it is becoming increasingly clear that the Union  has to act  in a 
coordinated way if it is to safeguard  its interests  effectively. 

2.  The interests of the Union are affected  by corruption as it 

undermines sound decision making, 
distorts  competition  and  challenges  principles  of  open  and  free  markets,  in  particular  the 
proper functioning  of the internal market; 
damages the financial interests of the European Communities; 
adversely affects  external policies in respect of a number of states receiving 
assistance; and 
is at variance with the transparent and open conduct of international trade. 

3.  The  Union  has  an  interest  in  formulating  a  coherent  strategy  on  corruption  both 
within  and  outside  its  borders  while  fully  respecting  international  legal  rules  on 
jurisdiction.  Such  a  strategy  should  encompass  international  trade  and  competition, 
Community  expenditure  abroad,  Community  own  resources,  development  co-operation 
policies and the pre-accession strategy. 

1.2  THE DIMENSIONS OF CORRUPTION 

4. Corruption relates to any abuse of power or impropriety in the decision making process  brought 
about by some undue inducement  or benefit.  This general notion  of corruption  may be  considered 
in the context of a number of parameters. 

Différent  forms of misconduct may affect  the decision making process.  In legal terms they may 
fall under different  categories e.g. abuse, fraud, trafficking  in influence, bribes, commissions. Not 
all these kind of practices are necessarily criminal offences  in every Member State. There is no 
single uniform  definition  of all the  constituent  elements of corruption.  There  are  examples  of 
practices which are not criminal offences  in one Member  State but  which are still regarded  as 
the  provision  of  gifts  where  there  is  a  tacit 
corrupt  in  other  Member  States,  for  example 
expectation that the person providing gifts may receive favourable treatment. 

All acts of corruption involve at least two parties, the party who offers the bribe - the offence  of 
active corruption -  and the party who accepts the bribe - the offence  of a passive corruption. 
Active corruption  can involve either a  private individual, or a legal entity (such as a company) 
offering  bribes.  Passive  corruption  can  involve  the  acceptance  of  bribes  by  public  officials, 
politicians, employees, etc.  It can also  include persons who do not make decisions themselves 
but have influence over the decision maker. 

• 

• 

• 

Corruption is not limited to the public sector.  Also in the private sector a bribe may induce a 
person to act in breach of a contractual, administrative or ethical obligation. 

Corruption can be international.  Bribes can involve payments in other states.  It may also involve 
payments, on the national territory, to  foreign  officials  and officials  of the EC  or international 
organisations. 

Certain policy areas may be viewed as particularly vulnerable to corruption.  The legislator may 
wish to  concentrate  on these  areas which  have  special  characteristics.  An  example  is the EU 
instrument  dealing only with corruption which damages the ECs' financial interests.  Clearly a 
specific Union level approach was required. Work in the OECD has concentrated on corruption 
in international business transactions because this type of corruption has particular implications 
for economic transactions involving OECD members. 

5.  All Member  States criminalise the  bribery  of their own  public  officials1  but  not  in a similar 
way. 

The  following  definitions  of  passive  and  active  corruption  of  public  officials  have 

been  used  in  the  draft convention on the fight against corruption involving officials of the EC or officials of Member 
States of the European Union and  give  an  indication  of  the  constituent  elements  which  are 
common  to  the  15 Member  States. 

"The  deliberate  action  of  an  official  who  requests  or  receives,  directly  or 
through  a  third  party,  advantages  of  any  kind  whatsoever  , for  himself  or  for  a 
third  party,  or  accepts  a  promise  of  such  an  advantage,  to  act  or  refrain  from 
acting  in accordance  with  his  duty  or  in  the  exercise  of his  functions  in  breach 
of  his  official  duties  shall  constitute passive  corruption. 

The  deliberate  action  of  whosoever  promises  or  gives,  directly  or  through  a 
third  party,  an  advantage  of  any  kind  whatsoever  , to  an  official  for  himself  or 
for  a  third  party  for  him  to  act  or  refrain  from  acting  in  accordance  with  his 
duty  or  in  the  exercise  of  his  functions  in  breach  of  his  official  duties  shall 
constitute  active  correction." 

•  In some Member States if a bribe is paid on behalf of a company, then the company itself may be 
criminally liable while in other states the company will have no liability, only the natural persons 
involved will have committed an offence even if it was for the benefit of the company. 

•  In certain  states, elected  officials,  Ministers or  members of Parliament  will not  be regarded  as 

public officials and will not be subject to the same laws against corruption. 

•  In some states paying a bribe to a person who has influence over an official  is not necessarily an 
offence. The bribe must be paid to the official  who makes the actual decision before any criminal 
offence is committed. 

•  In  some  states  the  officials  must  act  in  breach  of  his  official  duties.  So  no  crime  may  be 
committed when an official  accepts a bribe to award a contract to a company which should have 
got the contract in any event. 

6.  At present in the majority  of Member States it is not an offence  to bribe a foreign  official  or 
officials  of international  organisations  in any circumstances.  Even  in the four  Member  States 
who can prosecute the bribery of foreign officials,  different  approaches are taken. 

•  One approach is the application of territoriality. If corruption of a foreign official  occurs on the 
territory  of  such  a  Member  State  both  the  active  and  passive  parties  are  liable  to  criminal 
prosecution  even if the bribe  is not  a  criminal  offence  under  the  law  of the  foreign  official's 
home.  However  no  offence  will  have  been  committed  in  that  Member  State  if the  act  of 
corruption occurs abroad 

•  Some countries take a broad approach to the question of territoriality. They will take jurisdiction 
if any element of the offence has occurred on their territory. Other countries have a more strict 
approach.  They require the substantive part of the offence  must have been committed  on their 
territory before they will take jurisdiction. 

•  Another approach, which can be in addition to the territorial approach, is to establish jurisdiction 
on the basis of nationality.  It is then an offence  for a national of that Member State to bribe a 
foreign official  even if no element of the offence  is committed on its territory.  The offence may 
be limited to the Member State's national who paid the bribe (active corruption only). There may 
be a requirement  that  the conduct  is also a criminal offence  under the law of the  state  of the 
foreign official who was bribed (dual criminality). 

7.  A  significant  number  of  Member  States  do  have  criminal  offences  involving  private  sector 
corruption but the differences  in approach between Member States is even more marked than that 
found with the corruption of public officials. 

8.  This Communication is not advocating that there should be complete harmonisation of Member 
States' laws and policies on corruption.  However there are certain key issues where a common 
approach at Union level is desirable. 

PART II: FIGHTING CORRUPTION  IN SPECIFIC POLICY AREAS 

II. 1  CORRUPTION AND CRIMINAI . LAW 

One of the essential elements in combating corruption is to ensure that it is criminalised. 
9. 
In addition to its deterrent  and repressive effect,  criminalising corruption  represents a clear and 
unequivocal statement that those practices are not acceptable and are against the public interest. 
Ideally the criminal law within the Union should address the bribery of  EC officials,  the bribery 
of officials  of other Member  States, the bribery of officials from states outside the Union and 
private sector corruption. 

10. In most Member States it is not an offence to bribe EC officials  or officials  of other Member 
States.  This poses a particular problem where the EC budget is being affected.  In  1995 Spain 
proposed  what  became  the  First  Protocol  to  the  Convention  on  the  protection  of  the 
European  Communities1  financial  interests2.  This  Protocol  makes  active  and  passive 
corruption involving  an official  of the Community or any Member State a criminal offence  in all 
Member  States if it damages the ECs' financial interests. The Protocol is not yet in force.  No 
target date for its implementation has been set.  Its ratification  is linked to the ratification  of the 
Convention on the Protection of the financial interests of the Union. 

11.  Member States should  commit  themselves  to ratifying  and  implementing the First 
Protocol by mid-1998. 

12.  The First Protocol was limited to corruption  affecting  the ECs' financial interests.  Italy, 
therefore,  proposed  in  1996  a  draft  convention  to  ensure  that  active  and  passive  corruption 
involving officials of EU institutions or officials of Member States will be criminalised even if the 
EU's financial interests are not affected.  The substance of this draft convention was agreed upon 
quickly but there have been delays in its adoption. 

13.  Member  States  should  commit  themselves  to  adopting  the  draft  convention  on  the 
fight  against corruption  involving officials  of the EC or officials  of Member States of the 
European Union as soon as possible with a view to its ratification by end 1998. 

14.  The initiatives taken so far do not address the corruption of officials from third countries 
even  where  Community  funds  are  at risk. As  regards  corruption  outside  the  Union  a  step 
forward  would be to criminalise the active corruption  of a foreign  official.  This would cover 
those persons within the EU  who bribe  officials  of non Member  States. Any proposal has to 
respect international rules on jurisdiction. Therefore it should address offences committed in part 
or in whole on the territory of a Member State and possibly also offences committed abroad by a 
national  of  a  Member  State.  The  question  of  dual  criminality  and  the  definition  to  be used 
requires further consideration. 

S i g n ed  on  of27/9/% 

15. 
It is important that any agreement on criminalising bribery of foreign  officials  involves as 
many countries as possible. This would ensure that Union enterprises subject to a law against the 
bribery of foreign  officials  are not put at a disadvantage  compared  to their  competitors from 
other countries.  There were attempts in 1978/1979 to draw up a UN convention.  The Council 
of Europe is at present drawing up a comprehensive convention which will address this issue. 
The OECD  is also  looking  at  this  issue.  A draft  instrument  is to be discussed  at  this  year's 
OECD Ministerial.  It is limited to corruption affecting  international business transactions.  This 
will be a valuable step forward.  It would  however not address all types of corruption  notably 
those affecting EU external financial and technical assistance. 

16.  The Commission supports the adoption of a common position under Title VI of the 
TEU favouring the criminalisation of the bribery of foreign officials with that objective to 
be pursued in the Council of Europe/OECD. 

17.  Private sector corruption has not yet been addressed within the EU.  It occurs when for 
example a person in a private economic entity is bribed to act in a way which is in breach of his 
or her duties.  Some Member States already criminalise private corruption to some degree3.  In 
other Member States civil or administrative measures are the only remedies applicable. Private 
corruption is being discussed in the Council of Europe. Because of its implications, notably for 
competition, the Union has an interest in combating this form of corruption. 

18.  The Commission  is in favour of criminalising  private corruption  using Title VI of 
the TEU and, as a starting  point,  supports  the adoption  of a common  position  for the 
purposes of the negotiations currently underway in the Council of Europe. 

19.  Criminal  sanctions alone are not a sufficient  method  of combating  corruption.  Only a 
modest number of corruption  cases are successfully  prosecuted.  A wide variety of measures, 
such as improved transparency and socio-economic conditions, are also required.  The following 
sections refer to some of the more relevant  non-criminal measures against corruption. 

II.2.  TAX DEDUCTIBILITY 

In  calculating  taxable  business  profits,  it  is  normally  permissible  to  deduct  from  the 
20. 
business  receipts  those  expenses  that  are  associated  with  earning  the  income.  This  is  a 

7 Member States have provisions criminalising the bribery of the employees or 
agents of private sector companies.  In some, although it is a criminal offence 
it is dealt with under the law on labour, unfair competition or unfair business 
practices.  An example of this is the  Code  du 
which makes it a criminal offence for a manager or employee to solicit or accept, 
directly or indirectly, without the knowledge and authorisation of his employer 
offers or promises of gifts, discounts or consideration to carry out or abstain 
from carrying out an act relating to his position or facilitated by his position. 
In others, the general criminal law applies to corruption in both the public and 

Français, 

L.152-6 

travail 

article 

private sectors.  For example section 1(1) of the U.K. Prevention of Corruption 
Pet  1906 applies to all "agents" whether in the public or private sector. 

widely-accepted  principle  of  taxation.  That  said,  not  all  current  expenses  are  universally 
deductible.  For  example,  some  countries  specifically  disallow  tax  deductions  for  certain 
categories of expenditure, such as payments which are illegal under the laws of that country, or 
entertainment expenses. 

21.  Only a few  Member  States'  tax codes provide for  the  outright  disallowance  of corrupt 
payments  made to  foreign  officials.  Apart from such  a total  disallowance,  the  main existing 
grounds for  not allowing tax deductions in some countries include the nature of the payments 
themselves (gifts and entertainment, etc. may not be tax deductible, irrespective of whether their 
acceptance is corrupt  or not); the difficulties  in substantiating  such payments; or their illegality 
(whether in the country of the payer, or in that of the recipient). 

22.  A number of Member  States specifically  permit tax deductions for the bribery of foreign 
officials  if the  bribes  are  recognised  as  being  customary  business  practice  in  the  territory  in 
question.  In such circumstances, the giving of the tax allowance may be made conditional upon 
the disclosure to the tax authorities of the identity of the recipient. 

23.  The two major EU trading partners have differing  grounds for disallowing tax deductions 
for the bribery of foreign officials.  The USA does not allow deductions for bribes paid to foreign 
officials  if the payments constitute criminal offences  under its Foreign Corrupt Practices Act of 
1977.  In Japan, however, bribes are are disallowed for other reasons. 

24.  Taxation policy is classically regarded  as being morally neutral. This view is not justified 
where  allowances are granted  for  what  is a criminal  activity  in the  state  in which the bribe is 
accepted.  This  can  be  seen  as  endorsing  criminal  acts  committed  in  other  jurisdictions. 
Moreover, tax allowances which may induce bribery have implications for competition, and may 
distort  the  single  market  and  international  trade.  It  also  affects  the  economic  and  social 
development  of third  countries.  The practice  may engender  scepticism  in candidate  and third 
countries  as  to  real  aims  of  the  Union  when  EU  enterprises  are  seen  to  be  receiving  tax 
allowances for bribing officials of these countries in the pursuit of business. 

25.  The criminalisation  of the  bribery  of foreign  officials  will  have some positive effect.  In 
countries where payments are tax deductible as long as they were not illegal, the criminalisation 
will  automatically  put  an  end  to  tax  deductibility.  But  it  could  be  some  time  before  such  a 
criminalisation takes place.  Even when it does, it will not necessarily resolve all the issues. 
•  A state might allow tax deductibility unless a criminal offence has been proved.  In practice, a 

requirement for proof could mean very little improvement over the existing position. 

•  There  will  still be  cases where  a bribe  paid  to  an  official  of  a third  country  constitutes  a 
criminal offence  in that  third  country  but  not  in the EU Member  State.  This could be so 
where a substantive part  of the offence  was committed  abroad, or because the requirement 
for dual criminality has not been met. 

•  There are dubious practices which, for various reasons, will not be criminal offences.  The 
absence of criminalisation does not remove the moral case for disallowing tax deductibility for 
such payments.  The practical difficulties in doing so should however not be underestimated. 

26  There are calls from a number of fora for the abolition of such tax deductibility which may 
favour bribery (UN, the Council of Europe, the OECD and the  European Parliament).  All 15 
Member States have adopted the OECD recommendation that "countries which do not disallow 
the  deductibility  of bribes to  foreign  officials  re-examine  such  treatment  with the  intention  of 
denying this deductibility".  It would appear therefore that all Member States are in principle in 
favour of disallowing such tax deductibility.  Some Member States are, however, concerned that 
they will be at a competitive disadvantage if other major trading nations continue to  allow it. 
Furthermore, it may be easier for an affected  Member State to introduce changes in response to 
an EU instrument rather than to initiate reform on its own, at national level. 

27.  The Union has an interest in a common approach to the abolition of tax allowances that 
may induce corruption. 

•  The  fact  that  corruption  can  distort  competition  is  already  recognised  by  international 
organisations such as the OECD and the Council of Europe, as well as being already reflected 
to some degree in the laws of certain  Member States (e.g. German and  Austrian legislation 
against unfair competition).  The purpose of bribery in a business context is to gain an illicit 
advantage which distorts competition. 

•  State measures which effectively  encourage the use of bribery by allowing the deductibility of 
bribes  to  foreign  officials  give  exporting  enterprises  in  those  Member  States  an  unfair 
advantage  both  over  domestically-orientated  competitors  and  over  enterprises  in  Member 
States where no such deductibility is allowed.  The external  dimension of an action  against 
bribery therefore has to be taken into account 

•  The  question  of  tax  deductibility  of  bribes  for  foreign  officials  is  not  just  relevant  for 
competition  and  commerce.  Clearly  any  policy  measure  relating  to  the bribery  of  foreign 
officials  has  implications  for  development  co-operation  and  potentially  affects  developing 
countries. 

28.  The  Union  should  also  exploit  to  the  full  existing  channels  for  the  exchanges  of 
information between taxation authorities so far as corrupt payments are concerned. In so far  as 
a bribe may affect  the tax liability of the recipient, the Mutual Assistance Directive4 provides a 
framework  for the provision of information  to the taxation authorities of the Member  State in 
which the  recipient  of  a bribe  resides.  Ensuring  that  the  recipient  is at  least  taxed  on  sums 
received  would act as a deterrent  to bribery,  even if the taxation  authorities may not  pass the 
information on to the judicial authorities in the state concerned. 

29.  As  an  initial  approach  the  Commission  will  raise  the  question  of  the  tax 
deductibility  for bribes with the Member States in the appropriate fora, with a view to 
reaching consensus to abolish such provisions in the framework of a joint conceited move. 

(Directive 77/799/EEC) 

II. 3  THE SINGLE MARKET AND OTHER INTERNAL POLICIES 

30.  The free movement of goods and services is based on the principles of non-discrimination 
and free competition.  Corruption runs against these principles.  There is a case for examining the 
rules protecting the free movement in a number of areas to see whether specific measures aimed 
at combating corruption may be proposed. 

H.3.1 Public Procurement Directives 

31.  These  directives  aim  at  assuring  transparency  and  equality  of  access  for  public 
procurement. 

The existing directives5 on public contracts under the heading  'Criteria for qualitative selection' 
lay down that any enterprise/supplier may be excluded from participation in the contract 

who has been convicted of an offence  concerning his professional  conduct by a judgement 
which has the force of res judicata; 
who  has  been  guilty  of  grave  professional  misconduct  proven  by  any  means  which  the 
contracting authorities can justify. 

These provisions cover corruption. 

32.  The  Commission  Green  Paper  entitled  "Public  Procurement  in  the  European  Union: 
Exploring  the  Way  Forward"  of  November  1996  recognises  that  fair,  transparent  and  non 
discriminatory award procedures, together with the possibility for  suppliers to have recourse to 
national courts to assert their rights limit the risks of fraud and corruption.  Even though the  fight 
against corruption may not be the primary objective,  any improvement  in the existing situation 
regarding public procurement  could usefully  contribute to that  fight.  One particularly relevant 
idea put  forward  in the  Green  Paper  is that  of  a  statement  of  personal  accountability  by the 
responsible national official that the Union's public procurement rules have been followed. 

33.  Areas  which  could  be  explored  further  include  blacklisting,  anti-corruption  commitments 
and  civil  remedies.  There  are  provisions  in  the  public  procurement  directives6  dealing  with 
attestation and civil remedies but only in respect of the authority which awards the contract. 
In an international context it is very much in the Union's interest to promote greater transparency 
in the area of public procurement.  This objective  can be pursued in the OECD and the WTO 
where work is on going at present 

34.  Following  the  consultation  launched  by  the  Green  Paper,  the  Commission  will 
explore how the application  of  provisions  in the area of public  procurement  relevant  to 
the fight against corruption can be improved. 

(93/36/EEC, 93/37/EEC and  92/50/EEC) 

6 

(Directive  92/13/EEC) 

II.3.2 Financial Transactions 

35.  Corruption frequently  involves a transfer  in cash or kind.  Cash transactions, particularly 
those involving large sums of money, can leave traces as the money moves from the body paying 
the  bribe  to  the  person  receiving  it.  The  bribe  has  to  be  sourced  from  somewhere  to  be 
transferred  and finally the recipient has to deposit the bribe (e.g. a bank account) or convert it 
into goods, services or property.  As bribes are generally illegal, any measure which allows the 
payment of bribes to become known serves as a preventive measure, deterring the payment of 
bribes, as well as facilitating the confiscation of illicit money paid to public officials. 

II.3.2.a  Company accounts 

36. 
If a company uses its assets to pay bribes then these payments must be accounted  for in 
some way.  The existence  of  "slush  funds"  in  companies  are  a key  element  in the  corruption 
process.  This  may be  countered  to  some  degree  by  rules  on  the  transparency  of  company 
accounts.  Work in the Council of Europe has drawn attention to the importance of auditors and 
company  accounts  in  combating  corruption.  The  OECD  has  recommended  that  accounting 
requirements and practices should provide for adequate recording of  relevant payments.  In July 
1996, the Commission presented a Green Paper on "the role, the position and the liability of the 
statutory auditor within the European Union".  That paper also addresses the role of the auditor 
in detecting corruption  in the company  accounts.  A series of follow-up  actions, based  on co 
operation with the representative bodies of the accounting profession, will be undertaken, to be 
monitored by the Contact Committee on the Accounting Directives. 

37.  Following  the  Green  Paper  consultative  phase  the  Commission  will  present  a 
Communication  with concrete proposals on how the Accounting  and  Auditing Directives 
and their application can be made more effective  in the fight against corruption. 

II.3.2.b  Financial institutions 

38.  A bribe is normally routed at some stage in the transaction through a financial institution. 
The  OECD  has  recommended  that  banking  and financial institutions  should  be  required  to 
maintain adequate records for inspection and investigation in cases of corruption.  The Second 
Banking Directive already requires  every credit institution to  have  a  sound  administrative and 
accounting  procedures  and  adequate  internal  control  mechanisms.  The question  of access  to 
those records by police or judicial authorities is normally determined by national law. 

39. 
The Money Laundering Directive applies to the proceeds of drugs offences  and to the 
proceeds of other offences  designated by Member States.  Banks and other financial institutions 
would have to keep and make available customer identification  and transaction details for use as 
evidence  in  any  investigation  into  money  laundering  and  would  also  be  obliged  to  report 
suspicious  transactions.  The  Commission  has  already  proposed  a  "Second  Protocol"  to  the 

Convention on the Protection of financial interests of the Community which makes it a criminal 
offence to launder the proceeds of corruption in relation to the EC budget. 

40.  Member States should establish as a criminal offence the laundering of the proceeds 
of corruption.  The Commission has already formally proposed this as regards corruption 
affecting the Communities financial interests in the draft "Second Protocol". 

II.3.3  Other measures and policies 

41. 
In any particular  sector  such  as agriculture,  structural  funds,  the transit  regime,  specific 
measures may contribute to combat corruption.  This section explores the application of certain 
anti-corruption  measures which might be of value in various areas where  Community  policies 
involve large scale expenditure with a potential for corruption or other forms of abuse. 

n.3.3.a  Blacklisting 

42.  Blacklisting provides a mechanism to recognise an undertaking which has been convicted 
In this regard  it may also be envisaged  to  identify 
of  having committed  some infringement. 
companies  who  represent  a  substantiated  risk  of  non-reliability  as  regards  corruption. 
Blacklisting  can be used  to  prevent  such  undertakings from competing  for  or  being  awarded 
further  contracts/subventions or it may be used merely to alert people to possible risks in dealing 
with such an undertaking. 

43.  A  Council  Regulation7  provides  for  measures  against  blacklisted  operators,  such  as 
exclusion from entitlements under the FEOGA guarantee  section.  This Regulation  deals with 
irregularities  in respect  of Community  provisions.  It  does not,  however,  cover  every form  of 
corruption  committed  in  connection  with  FEOGA  funds.  Furthermore  nothing  prevents  a 
particular  company,  which  has  previously  been  excluded  under  this  Regulation  because  of 
corrupt practices from applying for a contract or entitlement which is funded  by another part of 
the Community budget. 

44. 
The  provisions  in  the  directives  on  public  contracts  under  the  heading  'Criteria  for 
qualitative selection' lay down that an enterprise may be excluded from participation in a contract 
in the case of certain infringements8.  These provisions cover corruption.  They apply equally to 
contracts awarded by the Commission or its services. 

45.  Establishing  some form  of comprehensive  blacklisting  system  applicable to  areas where 
Community finances are at risk could be considered.  This would include the area of external 
assistance.  The use of that  list  would  vary from sector  to  sector.  In  some cases  it  may be 
appropriate for  a blacklisted enterprise to be automatically excluded from certain benefits for  a 

7 

(Council  reg. 1469/9b, Commission  req.  /45/96) 

8 
The Criteria  Cor qua I i t .it i vc  .-if I <>or i on  lay down  that  any enterprise  may  be excluded  f i om 
participation  in t lu- '-uni rvl 

-  who  has  been  convicted  of  an  offence  concerning  his  professional  conduct  Ly  a 

judgment which has the force of res judicata; 

- who  has  been  guilty  of  grave  professional  misconduct  proven  by  any  means  which 

the contracting  authorities  can justify.(See  also section  II.3.1 above.) 

10 

set  period.  In other  cases  such  as  public  procurement,  blacklisting  would  be  for  information 
purposes.  The deciding authority, having been alerted to the past record, might have the option 
to determine what action should be taken.  Alternatively a register of legal and natural persons 
who have been blacklisted could be established so that national and Commission services could 
be alerted to the dangers of dealing with those particular  operators.  Data bases could  identify 
who is behind firms and be readily accessible. 

46.  An important  consideration  to  be  taken  into  account  when  exploring  the  possibility  of 
establishing a system of blacklisting would be the need to respect  data protection  principles as 
well as the principles9 of proportionality, subsidiarity and the rights of the individual. 

II.3.3.b  Commitments against corruption 

47.  All competitors for a specific project might be required to give a written undertaking that 
they will not use bribery to obtain the contract.  This commitment discourages bribery and can 
leave the enterprise open to a civil action for damages or a contractual fine.  Another approach is 
to restrict certain tenders to enterprises who have adopted special codes of conduct or practices 
against the use of corruption in seeking to obtain contracts.  Caution would have to be exercised 
with this latter approach to ensure that it does not unduly restrict fair competition for tenders. 

48.  The Commission  will work on a scheme  of  blacklisting  and  commitments  against 
corruption applicable to areas where Community finances are at risk.  It would allow for 
an inter-sectorial exchange of information  on persons and enterprises who have engaged 
in corruption while respecting data protection requirements. 

11.3.3c  Civil remedies 

49.  A criminal  or  administrative  sanction  does not  compensate  the undertaking  who  was not 
awarded a contract because of corrupt practices by a competitor.  A civil action would provide 
some remedy for  such loss.  It would also allow an injured  competitor to take action against a 
corrupt  competitor  on his own initiative and  as such might reduce the  need  for  administrative 
action.  It would be self policing. 

50.  Although not specifically  aimed at corruption, the possibility of civil remedies does exist 
under the Public Procurement Directives for an enterprise which has lost out on a contract due 
to an irregularity  in the procedures followed  in awarding the contract.  However such action is 
limited to the public procurement area and lies against the body awarding the contract and not 
A more general approach for civil action 
against the competitor who actually paid the bribe. 
by enterprises against  competitors  who  have paid  bribes is being examined  by the Council  of 
Europe. 

Directive  95/46/EC 

11 

51.  At  an  appropriate  stage  the  Commission  will  propose  the  adoption  of  a  common 
position  on  the  question  of  civil  remedies  against  corruption  in  the  context  of  the 
discussions going on in the Council of Europe. 

II.3.3.d.  Whistle Blowers 

52.  Whistle blowers are employees working for corrupt  enterprises who alert the authorities 
to the fact that their firm is engaged in corrupt practices.  Such "whistle blowers" are often  left 
without  the  appropriate  legal  protection  and  can  be  victimised  for  their  actions.  The  report 
entitled  "Whistleblowing, fraud and the European Union" published in February  1996 by Public 
Concern  at  Work  (London)  called  for  by  the  European  Parliament  and  sponsored  by  the 
Commission addresses many of the issues involved.  The Commission is carrying out a study on 
national legislation and practices regarding the individual rights of workers to be consulted on 
internal  company  matters,  including the  worker's rights to  be protected  against  any  prejudice 
arising from a legitimate complaint put forward by a worker to a public authority. 

53.  Member States should review and, where appropriate, amend their existing law to 
ensure that individuals who report instances of corruption are adequately protected from 
victimisation. 

n.4  EXTERNAL ASSISTANCE AND COOPERATION 

II.4.1  Preventing Corruption in Third Countries Benefiting from EC Assistance 
54.  The Commission has included the fight against corruption in its external co-operation and 
assistance policies.  Funding is provided for a range of projects which relate to the fight against 
corruption  directly  (regional  seminars)  or  indirectly  (improving  the  judicial  structure  and 
administrative transparency).  Initiatives are taken to combat corruption such as the organisation 
of seminars on rules of origin and workshops aimed at improving financial management and the 
fight  against  fraud. 

55.  The fight against corruption requires a balanced approach.  The conditionally linked to the 
fight  against fraud and corruption must be part of a coherent  development  strategy. There is a 
case  for  greater  coherence  between  the  Union's  anti-corruption  policies  taking  account  of 
regional differences. 

56.  Any strategy should: 

support the creation of appropriate legalisation and control mechanisms and institutions by 
way of providing the necessary technical assistance, 

12 

improve the functioning and transparency of public procurement, 

take  performance  regarding  the  management  of  public  resources  into  account  when 
deciding on initiatives based on financing from Community funds, 

support the improvement of the socio-economic environment. 

57.  The Commission will establish a coherent anti-corruption strategy in the area of its 
co-operation with Third countries which  benefit  from EC assistance or have concluded 
co-operation or assistance agreements with the EC. 

The Commission will further its support for the prevention of corruption, in particular by 
promoting  conditions  favouring  transparency,  good  governance  and  an  independent 
judiciary  and  by  providing  technical  assistance  for  establishing  appropriate  legislation 
and efficient  procurement and control mechanisms. 

The Commission will review its procurement and contract rules in the field of foreign aid 
with  a view  to  introducing  more effective  measures  against  corruption.  It will  seek  to 
harmonise  rules applied  in different  groups of countries.  This  revision  will  include the 
question of sanctions against firms which engage in corrupt practices. 

II.4.2.  Anti-Corruption Programmes 

58.  Certain  candidate  countries  for  EU  membership  in  Central  and  Eastem  Europe  face 
problems with corruption during the transition to full market economies.  It is important that the 
Union helps these countries to overcome these problems.  It affects their own reform programme 
and  furthermore  corrupt  practices  may  spill  over  to  neighbouring  states  in the  context  of an 
enlarged Union. 

59. 
In addition to concerns about the effect  of corruption  on third countries themselves, the 
Union, as a major provider of aid, has to be concerned if EU financial support is diverted from its 
intended  purpose  due  to  corruption.  The  European  Parliament,  the  Court  of  Auditors  and 
Member States are keen to see better management control and cost-effectiveness.  This issue is 
currently  discussed  at  the  Personal  Representatives  Group  on  SEM  2000.  The  recent 
reorientation  of the PHARE  programme  puts  emphasis  on the fight against  irregularities and 
fraud. 

60.  Technical assistance for containing corruption in the public sector in Eastern Europe has 
already been provided to a limited degree under the PHARE programme (e.g. the joint Council 
of  Europe/  EU  OCTOPUS  programme  on  corruption  and  organised  crime  in  Central  and 
Eastern Europe).  The joint  SIGMA project  with the OECD which addresses the problem  of 
public procurement  is also relevant.  The Newly  Independent  States  have their  own  problems 
with  corruption  which  are  affecting  their  process  of economic  and  democratic  transition.  A 
special initiative under the TACIS programme could be of relevance. 

13 

61.  In the case of Mediterranean  third  countries, there  is a movement  towards free trade and 
strong links with the single market.  The 27 Euromed partners specifically committed themselves 
in the Barcelona Declaration of 28 November  1995 to fight jointly against corruption.  Moreover 
the Council  MEDA  regulation °, which establishes co-operation  procedures, defines  strict and 
precise  standards  for  the  transparent  management  of  financial  and  technical  assistance  to 
Mediterranean third countries. 

62.  Special  anti-corruption  programmes  should  be  established,  particularly  in  the 
applicant  countries  in  Central  and  Eastern  Europe  in  line  with  the  protocols  to  the 
Europe  Agreements  on  opening  of  programmes  and  in  connection  with  the  envisaged 
Accession Partnership established around a national programme for the  implementation 
of the acquis.. 

II.4.3  "Good Governance" and anti-corruption clauses 

63.  The  Lomé  IV  Convention,  as  revised  by  the  agreement  signed  in  Mauritius  on  4 
November  1995  now  includes  "good  governance"  as  one  of  its  basic  principles.  A  more 
widespread  application  of this principle is required  if the Union  is to  pursue  a  comprehensive 
strategy. 

64.  The  principle  of  "good  governance"  should  be  considered  for  inclusion  in  all 
international agreements of assistance, co-operation and development. 

65.  The inclusion of anti corruption clauses could be envisaged in all specific contracts which 
are  aid  funded.  For  example  in March  1990 it  was  agreed  with  the  ACP  States  to  include 
specific clauses aimed at fighting corruption in the general conditions for  all contracts  financed 
through the European Development  Fund.  The Commission is now reviewing such clauses to 
see how their effectiveness can be improved. 

This  particular  issue  is  receiving  attention  at  an  international  level.  The  World  Bank  has 
strengthened its approach in this area and the Development Aid Committee of the OECD made 
recommendations in 1996 on the inclusion of anti-corruption clauses in aid funded contracts. 

66.  The Commission, in co-operation with the OECD, the World Bank and remaining 
multilateral  donors, will ensure that  anti  corruption  clauses  are included  in  aid  funded 
contracts. 

10  (n° 1488/96) 

14 

II. 5  CO-OPHRATION IN INTKRNATIONAI. H )RA 

If the EU is to  adopt  strong  anti-corruption  measures which  may have implications  for 
67. 
trade, it is in the interest of the EU that action be agreed at the widest possible level in order to 
achieve synergy benefits and to avoid a competitive disadvantage. 

The EU  must  also  seek  to  ensure  compatibility  between  internal  rules  aimed  primarily  at  the 
single  market  and  external  policies  which  aim  notably  at  strengthening  the  open  multilateral 
trading system.  The absence of such compatibility could be costly for trade and industry 

68.  The  issue  of corruption  and  transparency  arises  regularly  in  international  organisations 
such  as the  G7,  World  Trade  Organisation  (WTO),  the  United  Nations,  the  OECD  and  the 
Council of Europe.  It is also high on the agenda of the EU's major trading partners, particularly 
the USA. A UN declaration on "Corruption and Bribery in Transnational Commercial Activities" 
was adopted in December  1996, which calls on Member States to criminalise bribery (domestic 
or  transnational)  and  prohibit  tax  deductibility  of  bribes.  A  Model  Procurement  Law  of  the 
United Nations Commission of International Trade Law (UNICITRAL) has been developed. 

69.  The  new  WTO  Government  Procurement  Agreement  (GPA)  entered  into  force  on  1 
January 1996.  As the GPA is "plurilateral", not all WTO members are signatories.  At this stage, 
it does not include certain key markets in Asia, the Americas, Eastern and Central Europe and 
Africa. 

At their  Singapore meeting of December  1996, WTO Ministers agreed to  establish  a working 
group  on  the  subject  of  transparency  in  government  procurement  practices  with  a  view  to 
developing elements for inclusion in an appropriate agreement. 

70.  The Commission, will  also  press for an  ambitious and  co-ordinated  policy  line to 
combat corruption in all appropriate international fora  including the G-7 in  Denver in 
June 1997. 

* * * ** 

15 

ANNEX 1 

INTERNATIONAL INITIATIVES 

The G7 heads of State in Lyon on 28 June 1996 stated that: 

"... we are resolved to combat corruption in international business transactions, which is detrimental 
to transparency and fairness  and imposes heavy economic and political costs. In keeping with the 
commitment  of  OECD  Ministers  to  criminalise  such  bribery  in  an  effective  and  co-ordinated 
manner,  we  urge  that  the  OECD  further  examine  the  modalities  and  appropriate  international 
instruments to facilitate criminalisation and consider proposals for action in 1997." 

The G7 Finance Ministers on 27 April  1997 made reference to question of bribery and corruption 
and the issue is likely to come up again at the Denver G7 /P 8 summit in June 1997. 

The OECD  Ministerial  Council  on  11 April  1996 adopted  a recommendation  against  tax 
deductibility for bribes to foreign  government  officials.  This was in addition to recommendations 
on  corruption  adopted  earlier  in  May  1994.  It  also  asked  that  a  report  and  proposals  on  the 
criminalisation of the bribery of foreign officials in line with the G7/P8 summit statement in Lyon be 
submitted to it in  1997.  The issue is on the agenda of the May 1997 Ministerial Council. 

A World Trade Organisation  agreement on Government Procurement  entered into force 
on  1  January  1996 laying down various provisions on transparency,  openness and legal challenge 
which  will  help  alleviate  the  problem  of  corruption  in  the  area  of  public  procurement.  This 
agreement, while relevant for key trading partners of the Community does not apply, however, to 
all  WTO countries.  QUAD  countries  have therefore  tried  to  increase  compliance  at  the  WTO 
level.  At the Singapore Ministerial Conference  December  1996, negotiations were launched on a 
new interim agreement  on transparency,  openness and  due  process  (legal  challenge).  Following 
these  efforts,  further  work  will  be  undertaken  in  the  WTO  to  develop  an  agreement  on 
transparency. 

The  Council  of  Europe  has  established  a  special  multidisciplinary  group  on  corruption 
(GMC).  A detailed  action  programme  has been  adopted.  The  group  is  now  discussing  draft 
instruments in the civil, penal and administrative areas.  The theme of the next Justice Ministerial 
meeting in Prague, June 1997 is Corruption and Organised Crime. 

The United Nations have addressed the issue of corruption on a number of occasions.  Most 
recently,  in December  1996  as  part  of  a  resolution  on  Action  against  Corruption,  the  General 
Assembly  adopted  an International  Code  of Conduct  for  Public  Officials.  They  also  adopted  a 
declaration  against  Corruption  and  Bribery  in  International  Commercial  Transactions  which 
addresses inter alia the question of bribery of foreign officials, tax deductible bribes, extraterritorial 
jurisdiction and bank secrecy. 

The  World  Bank  in  August  1996  introduced  specific  anti-corruption  provisions  in  their 
procurement guidelines which apply to all goods and services financed from bank funds.  Later in 
1996 a  decision  was  made  that  the  Bank  should  treat  corruption  as  a  development  issue and 
internal groups were established to review the situation under a range of headings. 

16 

The  International  Monetary  Fund  has  recently  stressed  the  importance  of  fighting 

corruption and has focused on the promotion of good governance. 

In  March 1996 the Organisation of American States (OAS) adopted a convention against 

corruption. 

The  Transatlantic  Agenda  and  the  Joint  EU-US  Action  Plan  includes  a  specific 
commitment to combating corruption and bribery.  The US and European business communities 
at a meeting of the Transatlantic business dialogue in Chicago 8-9 November  1996 included a 
reference in their declaration deploring bribery and corruption  and stating that the issue would 
remain on their agenda for 1997. 

In  May  1996  the  International  Chamber  of  Commerce  strengthened  its  rules  of 
conduct on bribery in international business transactions and urged greater action at national and 
international level against corruption. 

Transparency  International,  a  non-governmental  organisation  dedicated  to  curbing 
corruption in international business transactions, has presented a paper advocating that action in a 
number of areas should be taken by the EU against corruption 

17 

ISSN 0254-1475 

COM(97)  192 final 

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