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«Bruno Bosco2 Margherita Savona DEMS DSG University of Milan–Bicocca Piazza Ateneo Nuovo, 1 20127 Milan, Italy Abstract In this paper corruption is ...»

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However, we innovate with respect to the literature by endogenizing this levelof tolerance to the regulatory choices of the government. Still, bribing is socially costly in efficiency terms even when full compliance would be inefficient. With too high compliance costs there are two cumulative sources of inefficiency: excess costly compliance for which the government might be responsible and bribing which might be considered as a privates reaction to high compliance costs. If excess of regulation is bad, corruption makes its consequences worse. Likewise previous studies, we show that, given compliance costs (the value at stake, in our model), corruption depends upon the probability of been caught and therefore all that increases this probability reduces bribes and fines. For instance, assume that the probability of discovery a corrupted agreement depends upon the monitoring activity of the government which is a random variable with F ( z ) = 1 − exp[−λ z ]N where z 0 and N 0 are, respectively, a measure of the government’s monitoring activity and the number of persons (officials or members of the public) somehow involved in the process or with a knowledge of it, then the expression for Θ/(1–Θ) can be substituted by f ( z ) /[1 − F ( z )] = λ N (λ z ) N −1 which is increasing in z and N. Given the monitoring activity, increasing the number of people with knowledge of the existence of a potential corrupt transaction (i.e. imposing transparency and bottom-up accountability to the process) decreases the probability of bribing and increases the possibility of discovering (e.g. trough whistleblowing).

In all, our results show that, given the equilibrium level of corruption, fines can be positive or negative according to the sign of dx/dr if the reduction of that level is pursed by public policy. This implies that also in corruption policy incentive compatibility requires the adoption of carrot-stick measures whereas stick alone might be even counterproductive. In the following sections the above results will be used to evaluate some aspects of the structure of the EU anti corruption policy.

4. EU measures against corruption and how effective they can be

Over the last decade, some efforts have been made at international, EU and national level to reduce corruption. At EU level, the anti-corruption legal framework has developed by the adoption of legislation on corruption in the private sector (Council Framework Decision 2003/568/JHA on combating corruption in the private sector (OJ L 192, 31.7.2003, p. 54) and the accession of the EU to the United Nations Convention against Corruption (UNCAC) (Council Decision 2008/801/EC (OJ L 287, 29.10.2008, p. 1).

The Treaty on the Functioning of the European Union recognises that corruption is a serious crime with a cross-border dimension which Member States are not fully equipped to tackle on their own13.

However, the implementation of the anti-corruption legal framework remains uneven among EU Member States and unsatisfactory overall. The EU anti-corruption legislation is not transposed in all Member States. The Commission does not have the power to bring legal proceedings against Member States for failure to transpose measures adopted under the Third Pillar of the Treaty, prior to the entry into force of the TFEU. Such proceedings will be possible from 1 December 2014, pursuant to Article 10 of Protocol No 36 on Transitional Provisions of the Treaty of Lisbon.

To date there is no mechanism in place monitoring the existence, and assessing the effectiveness, of anti-corruption policies at EU and Member State level in a coherent cross-cutting manner. At international level, the main existing monitoring and evaluation mechanisms are the Council of Europe Group of States against Corruption (GRECO), the OECD Working Group on Bribery, and the review mechanism of the UN Convention against Corruption (UNCAC). Framework Decision 2003/568/JHA on combating corruption in the private sector14, adopted in July 2003, aims to criminalise both active and passive bribery, establishing more detailed rules on the liability of legal persons and deterrent sanctions. In addition to stronger monitoring and implementation of existing legal instruments, anti-corruption considerations should, as part of a comprehensive approach, be integrated into all relevant EU policies – internal as well as external. A stronger focus should be put on the following policy areas.

In what follows we evaluate some of the most important EU policy steps against corruption on the basis of our previous results.

4.1 Law enforcement, judicial and police cooperation within the EU Member States should take all necessary steps to ensure the effective detection, prosecution and a stable track record of dissuasive penalties and recovery of criminally acquired assets in corruption cases. In this context, judicial and police cooperation between EU Member States, financial investigations, training of law enforcement personnel, and the protection of whistleblowers is of particular importance. In section

3.2 above the probability of detection is exogeneous to individual behaviour but measures can be designed to take advantage from any “false mouve” of privates and officerces. For this reason greater transparency and the envolvment of many actors in each activity increases the probability that the treat of whistleblowing (possibly anonimous) might reduce corruption. Consistently to this hypothesis, under its 2010strategy, Europol is committed to providing increased support for law enforcement Article 83(1) of the Treaty on the Functioning of the European Union lists corruption among those crimes for which directives providing minimum rules on definition of criminal offences and sanctions may be established, since corruption often has implications across, and beyond, internal EU borders.





Bribery across borders, but also other forms of corruption, such as corruption in the judiciary, may affect competition and investment flows.

OJ L 192, 31.7.2003, p. 54.

operations and function as the EU criminal information hub and EU centre for law enforcement expertise. The Commission urges Europol to step up its efforts to combat corruption as a facilitator for organised crime activity.

Since 2004, Eurojust has been involved in a slightly increasing number of corruption cases. Although in 2010 these cases represented only 2% of its total workload, the growing number of Member States involved attests to an increasing need for judicial cooperation in corruption cases with a cross-border dimension. The Commission urges Eurojust to strengthen its efforts to facilitate the exchange of information among Member States' authorities on corruption cases with cross-border implications.

The Commission15 have pointed to delays in the efforts by many Member States to adopt measures regarding confiscation of the proceeds of crime. The third Anti-Money Laundering Directive16 lists corruption as one of the predicate offences for money laundering. Evaluations conducted by the OECD's Working Group on Bribery suggest that very few foreign bribery cases are detected through the national anti-money laundering systems. The Commission stresses the need for further cooperation between the Financial Intelligence Units17, specialized anti-corruption agencies and law enforcement bodies in Member States. Member States should ensure that financial investigations are pursued effectively and consistently in corruption cases and that any potential link with organized crime and money laundering is always considered.

The protection of whistleblowers against retaliation is a key element of anti-corruption policies. The relevant legal framework in the EU is uneven, creating difficulties in handling cases with a cross-border dimension.

The Commission will support the development of targeted training programmes on corruption for law enforcement agencies through the European Police College (CEPOL). Those programmes should cover specific aspects of handling corruption cases with cross-border implications, for example, the gathering and exchanging of evidence, the link with financial investigations, and the link with investigations of organised crime offences.

4.2 Public procurement Report from the Commission to the European Parliament and to the Council based on Article 8 of the Council Decision 2007/845/JHA of 6 December 2007 concerning cooperation between Asset Recovery Offices of the Member States in the field of tracing and identification of proceeds from, or other property related to crime (COM(2011) 176 final); Report from the Commission to the European Parliament and the Council based on Article 22 of the Council Framework Decision 2006/783/JHA of 6 October 2006 on the application of the principle of mutual recognition to confiscation orders (COM(2010) 428); Report from the Commission pursuant to Article 6 of the Council Framework Decision 2005/212/JHA of 24 February 2005 on confiscation of crime related proceeds, instrumentalities and property (COM(2007) 805 final); Report from the Commission based on Article 14 of the Council Framework Decision 2003/577/JHA of 22 July 2003 on the execution in the European Union of orders freezing property or evidence (COM(2008) 885 final).

Directive 2005/60/EC (OJ L 309, 25.11.2005, p. 15).

According to Article 21(2)(b) of Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, the "FIU shall be established as a central national unit. It shall be responsible for receiving (and to the extent permitted, requesting), analyzing and disseminating to the competent authorities, disclosures of information which concern potential money laundering, potential terrorist financing or are required by national legislation or regulation. It shall be provided with adequate resources in order to fulfill its tasks".

Public expenditure on works, goods and services accounts for roughly 19% of EU GDP (2009). Almost a fifth of this expenditure falls within the scope of the EU Directives on public procurement (i.e. approx. €420 billion, or 3.6% of EU GDP). According to EU (2011), the most common corruption scenarios that might occur in the public procurement procedures are the so-called "kickback" (i.e. payment of a bribe as a reward for the official who influenced the procurement process), manipulation of tender documents to favour a specific bidder, and the use of front/intermediary companies to cover the illegal activities of the corrupt official.

The current EU legal framework on public procurement18 does not include specific provisions on prevention and sanctioning of conflicts of interest, and comprises only few specific rules on sanctioning favouritism and corruption. In January 2011, the Commission launched a consultation19 on the modernisation of EU public procurement policy. It raises the question whether a common definition of conflict of interest and possible safeguards against such situations are needed at EU level, including the publication of concluded contracts to enhance transparency, the extension of exclusion grounds and 'self-cleaning' measures. Many of the above steps should be welcomed on the basis of our results. Still, more incisive measures should be adopted to reduce compliace costs, particularly about the participation to cross-border tenders where linguistic, legal and administrative barriers as well as continued practices of local preferences serve as a restraint on participation (Pîrvu et al., 2013) thereby creating conditions favorable to corruption. A serious help to reduce compliance cost might come from new regulation such as the planned adoption of a European Procurement Passport and the further development of use of e-procurement portals. The EU Green Paper (2011) emphasizes semplification and transparency of the procedures (public opening of the bids, compulsory publications of reports, ect.) as means potentially more effective than sanctions in curbing corruption through a reduction of correlated phenomena such as favoritism and collusion.

4.3 Privatization and selling of public property Many studies discuss the possibility of corruption when SOEs are privatized. In general, although privatizing SOEs migth reduce the opportunities for corruption, the privatization process itself can increase corrupt incentives. A firm may pay to be included in the list of qualified bidders or to restrict their number (Rose–Ackerman,



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