Dan Hough: Anti-Corruption in Germany; A Culture of Complacency?

The words ‘corruption’ and ‘Germany’ are not generally mentioned in the same sentence.  While the Federal Republic generally performs admirably in international corruption comparisons, complacency is rarely a sound policy choice.  Germany would benefit from thinking just a little more about where corruption may be lurking and what it might want to do about it.

Germany has traditionally been seen as a country where corruption is under control.  This was further supported when Transparency International (TI), the largest and most prominent anti-corruption NGO, published its 11^th annual progress report on the OECD’s Convention on Combatting Bribery in August 2015 (see here for the full report).  The Convention (see here for the full text of that) was adopted in 1997 and requires signatories to make foreign bribery a crime for which both individuals and companies are responsible.  41 countries have signed up to this, of which Germany is one.  That might not sound particularly impressive (i.e. over three-quarters of the world is not involved), but this group of advanced economies is still responsible for around two-thirds of the world’s exports and around 90 per cent of FDI outflows.  It’s a group that subsequently matters.

Of those 41 only Germany, Switzerland, the UK and the US were described as ‘actively enforcing’ the OECD’s treaty.  Six (Austria, Australia, Canada, Finland, Italy and Norway) were put in the ‘moderate enforcement’ category, whilst nine were in the ‘limited enforcement’ group.  These nine included some of the alleged anti-corruption superstars such as New Zealand and Sweden (2^nd and 4^th, no less, in TI’s oft-cited corruption perceptions index (CPI).  See here for the 2014 CPI table).  Finally, nearly half of all signatories to the treaty (20) were in a group where there was ‘little or no enforcement’.  The likes of Japan, Mexico, Luxembourg and Denmark (currently in 1^st place in the CPI!) appear to have signed up to the OECD’s anti-bribery principles and then to have basically done nothing at all to put these in to practice.

Leading from the front?

So, Germany’s one of the good guys, right?  Well, yes, but only up to a point.  Reports like this continue to support rather lazy assumptions that corruption is either next-to-non-existent at home, too insignificant to be relevant, or is something that simply happens elsewhere.  Indeed, these attitudes have been not just evident in Germany, they prevailed across much of the western world.  This was in spite of scandals such as the Flick Affair (see here) in the early 1980s, an episode that enveloped much of the political class, and a steady stream of other corruption scandals since then.  Indeed, and contrary to this general impression, there have been times when public life in Germany appeared to be plagued by a litany of high profile misdemeanours, ranging from a Chancellor maintaining a whole system of illegal bank accounts purely to side-track the country’s laws on party funding (see here) to Siemens being forced to pay back £1.6bn on account of being found guilty of a variety of corruption charges (see here).

The lack of public discussion about corruption also sits uneasily with a German public that has become highly critical of their public servants.  Many were criticised for being in politics to enrich themselves at the expense of the masses and the increasing number of scandals in German public life led to a whole new vocabulary developing, as Germans complained firstly of ‘Parteienverdrossenheit’ (disillusionment with political parties), then ‘Politikverdrossenheit’ (disillusionment with politics) but finally, and most worrying of all, ‘Politikverachtung’ (a disdain for politics).

Reports such as TI’s also can’t disguise the fact that over the last decade and a half Germany hasn’t actually fared that well in the various international league tables that look to try and quantify corruption.  In 2001, for example, Germany was a mere 20^th out of 91 countries (with a score of 7.4 out of 10) in the above-mentioned CPI.  The CPI certainly has its fair share of critics (see here for a taste of some of those criticisms), but it still nonetheless gives observers a feeling for how much corruption is perceived to exist.  By 2010 Germany’s score had improved to 7.9 (14^th out of 180) and by 2014 Germany registered 79 (now out of 100), leaving it joint 12^th out of 175.  Improvements since the nadir of the post-Kohl-donations scandal era, but not exactly top of the class either.

The 2013 Global Corruption Barometer (GCB) also gives plenty of food for thought.  A mere 8 per cent of Germans thought that the level of corruption in Germany had decreased over the last two years.  57 per cent thought that it had increased (see here).  Only 13 per cent of Germans thought corruption was either ‘not really a problem’ or ‘not a problem at all’, whilst 28 per cent believed that ‘it is a problem’ and a worrying 37 per cent a ‘serious problem’.  Furthermore, 65 per cent of Germans thought political parties were in general corrupt, 54 per cent thought the same of the media whilst 49 per cent thought civil servants were either ‘corrupt’ or ‘extremely corrupt’.  Hardly an edifying picture.

Where to now?

What does (or should) this all be interpreted as meaning?  Well, Germany has at least begun to make good on the rest of its international anti-corruption obligations. In November 2014 Germany finally, after years of prevarication, ratified the United Nations Convention against Corruption (UNCAC).  Germany signed the UNCAC in December 2003, but took just shy of 11 years to finally pass the relevant legislation at home to enable its full ratification.  This unseemly delay was, to be fair, due more to procedural than substantive factors centring largely around (predominantly conservative) parliamentarians’ unwillingness to change legislation on bribing MdBs (members of Parliament).  That stubbornness prevailed despite significant pressure from German business. That it took over a decade to sort this particular mess out didn’t look good.

Gerhard Schröder’s centre-left government (1998-2005), Angela Merkel’s ‘Grand Coalition’ (2005-2009) and her governments since have hardly trail-blazed in terms of prioritising anti-corruption initiatives.  The Ministry of Justice did draft a second Anti-Corruption Act (Zweites Gesetz zur Bekämpfung der Korruption) in 2006, with the stated intention of factoring new international agreements in to Germany’s criminal code.  Ultimately, the draft got nowhere near the statute book, mainly as there was, and is, no consensus that Germany’s first anti-corruption law actually needs radically changing.  A significant number of German policy-makers remain, as Nick Lord has persuasively argued, confident that “national provisions on corruption-related criminal offences” are already located in existing legal statutes and there is therefore little reason to set out on wholesale changes.^[1]

To be more specific, Germany still needs be more acutely aware of the corruption risks that small and medium-sized enterprises – the much-vaunted Mittelstand – face when conducting affairs abroad.  Given the importance of exports to Germany’s economy a new piece of legislation that takes the best of the American Foreign Corrupt Practices Act (FCPA) and the UK’s Bribery Act (UKBA) would be very useful.

Rather more transparency would also not go amiss.  Despite the fact that Thuringia, Lower Saxony and Rhineland-Palatinate have committed themselves to follow Hamburg’s lead in enacting transparency laws, the recent case of Bayer AG and the University of Cologne (see here) is a good indication that transparency as a culture is a long way from being genuinely embraced.

A stronger commitment to the culture of allowing wide-ranging access to beneficial ownership information would also be useful.  Beneficial ownership legislation allows the wider world to see not just who officially runs a company, but also who takes home the profits.  One of the tricks of the money launderer is to make a company look legitimate, whilst covertly taking home (or re-introducing and/or re-cycling as the case may be) the profits surreptitiously. Although the EU has been active in trying to expand the scope of beneficial ownership legislation, Germany has tried to limit public access (and that is the key bit) to information on who exactly takes home these profits. Germany has subsequently tended to be one of the first countries to stress the problems inherent in the new (December 2014) EU transparency disclosure rule that would compel all 28 European states to make publicly accessible the real owners of companies and trusts.  Germany, quite frankly, can do better.

A further example of German recalcitrance concerns data on anti-corruption law enforcement across the 16 Länder.  As things stand, it is very difficult indeed to find comparable data on which people and which companies have been subject to legal proceedings.  Making such information publically available in an accessible format could lead to a publically available list of companies that have fallen foul of corruption legislation.  This could then lead to barring them from bidding for future contracts.  If transparency in these areas is seen as the best disinfectant, then Germany still doesn’t appear particularly interested in thoroughly cleansing itself.

Germany is clearly not a country where corruption underpins everyday life.  But citizens perceive it as a problem and the political class doesn’t spend a lot of time (in public at least) talking about it.  That is a dangerous mixture and it is one that Angela Merkel and her government would do well to do something about now rather later.

[1] N. Lord (2011), Regulating transnational corporate bribery in the UK and Germany (Cardiff: PhD, Cardiff University), pp.131-132.

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