Expansion by the European Union (EU) into Central Europe will be an accomplishment of historic proportion, even though it may take until 2010 - or even 2015 - to be completed. It certainly offers opportunities for businesses wishing to develop new markets. However, one of the primary challenges facing the candidates for EU membership, as well as giving pause to potential business partners from the outside, is the inordinately high level of corruption which exists in all of the candidate countries.

The EU will integrate the post-Communist countries of Central Europe into a zone of democratic stability and free market prosperity. The EU is committed to expansion, but is realizing that it is an enormous task. Never before has the EU had to contend with integrating such a large area in terms of area, population, and market, not to mention the diverse histories and cultures. The ten countries in Central Europe seeking membership are: Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, the Slovak Republic, and Slovenia. (Cyprus, Malta, and Turkey are the other candidates outside of the former Soviet dominated countries.) In furtherance of this objective, these countries are struggling to reform themselves after decades of oppressive dictatorships and inefficient economies.

To be admitted, candidate countries must satisfy political and economic conditions grounded in the Treaties of European Union (Maastricht and Amsterdam). They must demonstrate that they can guarantee democracy, human rights and the rule of law, function properly in a competitive and free market, and incorporate EU legislation into their administrative and judicial structures. Candidates must satisfy all detailed rules and laws of the Treaties of European Union.

The first group of countries from Central Europe that will gain membership are the Czech Republic, Estonia, Hungary, Poland, and Slovenia. This group had hoped but failed to be admitted by 2000. Recognizing the progress toward EU standard that those countries had made in recent years, the EU agreed to start accession negotiations in 1998. However, reforms are underway and negotiations have been slow. The more likely entry date for this first group is between 2003 and 2005. The rest of Central Europe, despite some progress, still lags behind in reforms; and entry for the second group is likely to be between 2006 and 2008. Though EU expansion into Central Europe is taking longer than many had anticipated, most believe all candidates will be admitted by 2010.

Endemic Corruption

Corruption, hand in hand with communist rule, has flourished in Central Europe. Reports indicate that corruption exists all the way up to the highest levels of government. Senior government and private sector officials have been accused of paying bribes to influence legislation concerning the privatization of state owned companies and to obtain government contracts. Money has been wasted on prestigious contracts instead of needed public works. Corruption among judges and law enforcement officials has prevented states from solving cases of fraud and from prosecuting perpetrators. Politicians have been under investigation for money laundering and illegal political financing. Corruption is also present in areas of commerce, education, and medicine. Some businesses wait months to have their company officially registered while others wait only days. Poorly paid college professors hand out answers to college entrance exams for a fee. Hospital patients offer cash to medical staff to ensure they will receive the best treatment. Minor forms of corruption, like offering gifts to get a building contract or to re-activate a suspended drivers license, is a common part of everyday life.

Corruption has been socially ingrained in Central Europe. The "rendering of reciprocal services" dates back to the early days of Communism. Offering favors and paying bribes were ways to over-ride a stagnant bureaucracy and acquire a relatively comfortable standard of living, despite recurring shortages and repeated political disruptions. Today, it is still much a part of the society. Many have grown immune to the effects of corruption. By Western standards, there is a high degree of tolerance for and a weak moral attitude against corruption.

Economic and political systems in transition, like Central Europe, are particularly susceptible to corruption. Bureaucratic officials who anticipate losing their jobs, due to government restructuring, feel obligated to earn a living by any means possible. Government officials may accept payments to compensate for low salaries. Officials may divert as much money to themselves as possible before legal reforms take effect. Some argue that corruption fosters economic growth. Thus, it may ignite entrepreneurial activity in a region that is in the process of adjusting to capitalism. In many cases, both parties involved in a bribe benefit financially, and, if both caught, face the same punishments under existing law. Therefore, there is little incentive on either side to expose corruption.

However, corruption prevents Central Europe from achieving the necessary political and economic reforms needed to join the EU. It does not create the fair and open conditions for competition which are necessary for the proper functioning of an internal market. Corruption runs contrary to good governance and the rule of law that are underlying principles of the Treaty of European Union. Corruption hurts economic development. Economists argue that corruption fosters the inequality of income distribution that prevents stability for long term economic growth. Furthermore, money from external aid targeted for education, energy, medical care, housing and other projects to improve society is siphoned off to pay bribes instead of accomplishing its targeted use.

Fighting Corruption

The EU and the candidate countries realize that corruption impedes Central Europe's entry into the EU. Initiatives on the international and regional levels have been taken to implement effective legislation to combat corruption within the EU and Central Europe. All Member States of the EU, as well as the Czech Republic, Hungary and Poland, are members of the Organization for Economic Cooperation and Development (OECD). In 1997, all members of the OECD and non-members Bulgaria and the Slovak Republic signed the "Convention on Combating the Bribery of Foreign Public Officials in International Business Transactions," an accord similar in philosophy to the United States' Foreign Corrupt Practices Act (FCPA). All participants are required to implement legislation in their national legislature that makes it a crime to engage in bribery during international business transactions.

A "Programme of Action against Corruption" sponsored by the Council of Europe (a 40-nation intergovernmental organization founded in 1949) resulted in two conventions, pending final approval and implementation, that complement the efforts of previous EU conventions on corruption. The Criminal Law Convention includes measures to stop "trading in influence" and private sector corruption. The Civil Law Convention provides compensation by the State for any individual who has suffered from damage caused by acts of corruption by an official. In 1997, the European Commission presented "A Union Policy Against Corruption" to the European Council and Parliament. The same year, the Council signed a convention to "criminalize active and passive transborder corruption" within the EU. This eliminates the legality of tax-deductibility of bribes which was common practice among EU Member States.

The Tenth Annual International Anti-Corruption Conference will be held in Prague in October 2001. This will be the first time such a conference is held in this region. This is a sure indication that the region knows it must make progress in the fight against corruption. The Central European candidates for EU membership will be given the opportunity to relate the progress they are making in stopping corruption, with measurable progress being vital to their candidacy.

Central Europe is making strong efforts to rid itself of corruption, improve its business environment and achieve economic reforms. These efforts are necessary to meet the demands of EU accession. The EU possesses size, population, GDP and a monetary system that is comparable to the United States. The EU already offers excellent business and investment opportunities in a prosperous and legitimate market. Once the EU begins to admit the countries of Central Europe, the EU will rival any free trade area in the world including NAFTA.

Many opportunities already exist in Central Europe. Now is an important time to pay close attention to the course of EU enlargement. A well informed strategy, supported by appropriate due diligence and business intelligence, combined with a defined and effective program for recognizing and avoiding corruption, may result in excellent opportunities in an expanding European Union.

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