Report on “Grand Corruption” in EU Released

The paper provides the findings of analysis of academic literature and research materials, as well as 63 real cases and interviews with stakeholders from 40 countries and explores such types of unlawful activities as corruption in public procurement, border corruption, circumvention of sanctions by “kleptocrats” and oligarchs and other forms of corruption among high-ranking officials.

1. Corruption crimes

The authors of the research find out that the most widespread forms of “grand corruption” are bribery (it constitutes 67% of corruption in public procurement and 89% of border corruption), embezzlement, misappropriation and fraud (these forms are particularly frequent in public procurement), as well as document forgery and fraudulent transfer of assets (in circumvention of sanctions).

Border corruption involves cash more often (in 84% of cases), whereas bank transactions are more common for the other areas.

Illicit financial flows associated with corruption crimes can be of two types:

Money dirtying or transformation of the “legal” money into “illegal”, i.e. their primary movement in the form of a bribe to a public official;
Money laundering or legalization of “illegal” money, i.e. giving the proceeds of corruption a “legal” appearance.

In order to conceal the beneficiaries of crimes, legal businesses and corporate structures, including any legal vehicles that ensure the organisation and regulation of relations between the parties, are used in 59% of cases, especially in public procurement (87%) and circumvention of sanctions (93%). These methods often imply:

Involvement of jurisdictions with a high corruption risk and other non-EU countries in offences (48% of cases);
Use of offshore accounts (41%);
Engagement of gatekeepers and enablers (35%).

On average, in order to conceal corruption offences (except for border corruption) through registration of corporate structures, opening of bank accounts, real estate acquisition and other luxury products etc., three “layers” of different jurisdictions are used. Most frequently, these are Switzerland, the United States, the British Virgin Islands, the UAE and the United Kingdom, while in the cases of circumvention of sanctions these also include Turkey and Hong Kong. The authors of the document stress that relevant statistics prove the important role of developed countries as the key participants of corruption schemes ensuring the politically stable, rich, low-level corruption environment, often with a strong corporate secrecy, which, in combination, facilitates concealment and movement of proceeds of corruption.

2. Corruption risks

The document highlights that corruption risks can be assessed on the basis of data from different sources, in particular, administrative databases and corporate files.

For instance, as regards public procurement, these data include information describing different stages of procurement such as drafting of procurement documentation, assessment of potential suppliers and selection of the winner (for example, suspiciously short terms of announcement and adoption of the decision on contract awarding, unfounded overpricing etc.), as well as information about characteristics of the company (for example, non-transparent corporate ownership structures, links to the jurisdictions that ensure secrecy etc.).

3. Consequences of corruption offences

The paper states that the negative impact of corruption is determined by the area of activity in which the corruption crime took place.

For example, as regards public procurement, corruption results in:

Overpricing of public contracts leading to unjustified public spending;
Worse quality of the goods, works and services procured;
Inefficient allocation of financial, material and human resources in the interest of specific individuals or groups rather than society;
Lack of trust in public institutions;
Decrease in foreign investments.

Border corruption causes:

Financial loss, for example, in public custom duties;
Reduced tax payments;
Increased costs for bona fide individuals who do not commit corruption crimes;
Negative impact on society (for instance, greater burden on the healthcare system because of drug trafficking enabled by corruption).

Corruption in circumvention of sanctions stimulates:

Movement of assets to safe havens, through shell companies, transformation of assets into cryptocurrencies etc.;
Smuggling, grey import/export schemes and fictitious transactions.

4. Anti-corruption recommendations

The authors of the report identify two key areas for anti-corruption measures:

1. Enhanced quality of data for combating corruption:

Collect relevant, accurate, precise and reliable data (for example, the data on public procurement should include digitalised tender specifications, changes in contracts and information on transactions that are not gathered systematically in often cases);
Ensure comparability of the data collected also by standardizing the identifiers unique for different datasets (tax and tender identifiers, product codes, addresses);
Provide data in machine-readable formats to make it possible to automatically analyse and integrate them with cutting-edge statistics tools;
Organise training for and build capacity of the users of data, in particular, by civil servants and other stakeholders;
Ensure accessibility of the information that does not contain confidential or personal data for civil society organisations, journalists and academia, and develop and employ the protocols for the exchange of information containing confidential and personal data with law enforcement;
Draft and conclude contracts with private entities, including banks, other financial organisations and corporations that are owners of social networks to regulate access to the data they dispose of under clear conditions;
Develop such forms of public-private partnership that would facilitate the collection of data and create the conditions for cooperation between private companies and law enforcement bodies;

2. Strengthened anti-corruption legal framework:

Establish clear conditions for exercising the functions vulnerable to corruption (for example, the procedures for concluding public contracts in emergency situations);
Minimise the number of processes requiring personal interactions in the customs procedures and border inspections, introduce the “single window” digital technologies and electronic declarations;
Eliminate loopholes in anti-corruption legislation of the EU member states in such areas as public procurement, conflict-of-interest management, sanctions regimes functioning, and promote integrity in the customs service etc.;
Implement such digital technologies that, for example, allow civil servants to fill out their anti-corruption declarations electronically;
Oversee the enforcement of anti-corruption laws and provide sufficient financial and human resources to this end, distribute the responsibilities among competent authorities in a clear manner.

*FALCON (Fight Against Large-Scale Corruption and Organised Crime Networks) is an international research project implemented under the Horizon Europe programme and aimed at developing innovative instruments also through the use of artificial intelligence (AI) and big data to combat corruption and organised crime. The project was launched in 2023 and will last until 2026. It sees the participation of researches, experts in AI, data analysts and law enforcement from EU countries.