Home Flexcit Impact Assessments Monographs Contact Archive

Corruption: the elephant in the room


2015-07-18 05:56:53

000a Siemens-017 fraud.jpg

Looking again at the responses to the Greek crisis, one cannot avoid the observation that, when Jόrgen Habermas, Boris Johnson and Owen Jones all agree on one thing, then it is time to argue the opposite. 

In the one corner are those who argue that the EU's intervention in Greece is an affront to democracy and a graphic illustration of the dark side of European integration, justifying in spades the calls to leave the EU. That case is rehearsed by John Petley on the CIB blog, who provides a neat summary of the state of play and a suitable foil for what needs to be a vibrant debate.

Inhabiting the other corner are those who argue for a more nuanced stance. Yes, we all agree that we should leave the EU – the sooner the better. But we feel the need for caution before going overboard in support of the "oppressed Greeks", so grievously put-upon by the "dictatorship" of Brussels and Berlin.

The essence of our argument is that, at the very least, the Greeks have contributed to their own misfortune. And there is a credible argument – well worth exploring – that, despite the misfortunes visited upon Greece by the EU, had Greece dealt with the endemic (and epidemic) corruption afflicting its economy, it would not currently be in the mess it is, and would not have needed the destructive bailout that its causing so much angst.

In our view, this is very far from an academic argument. Nor is it one which can be ignored. For, while there is apparent merit is siding with Greece against the EU, as a means of stoking up support for the "no" campaign, such a line is not entirely without hazard and could very well backfire.

The immediate point at issue is that, while the eurosceptic fraternity has no doubts about where to place the blame for Greece's economic woes, the majority view of the British public is very different. Consistently, in this and another YouGov survey, the predominant tendency is to apportion at least some blame to the Greek government. Holding the EU solely to blame is very much a minority opinion.

Thus, in what could well be a prolonged referendum campaign, the easy hit is not necessarily going to be the winner, especially when there is plenty of well-founded material which puts corruption firmly in the frame.

In 2010, in Vanity Fair for instance, there was a long article pointing out how deep-seated in Greek society corruption had become, asking whether civic life in Greece could ever be recreated. Then, in 2011, Jeff Randall was able to write on Greek debt for the Telegraph, asserting without much evidence of controversy that: "It's the corruption, stupid!"

In 2012, an article in the Newsletter of the European Society of Criminology readily conceded that, "as the vast majority of domestic and international observers of the Greek crisis have reported, corruption has been a key factor contributing to the emergence of the country's financial crisis, organically related to over-expenditure and mismanagement of public funds".

Then, bringing this right up-to-date, we see an article from the influential Chinese Caixin Group assert that Greece's debt crisis has its roots in corruption and inefficiency, the scourge of what it calls clientelism.

Yesterday, a contact of mine deep within one fragment of the eurosceptic movement noted how his associates spoke glibly of "democracy" yet were totally intolerant of viewpoints other than their own. And so it is amongst some eurosceptics on the matter Greece. Its downfall must be attributed almost exclusively to the EU. No other actors are permitted to have anything other than a marginal role.

For all that, it is true to say that Greece has not been entirely unaided in its single-minded pursuit of becoming the most corrupt country in the EU.

Only a few months ago, we saw what might be the last phase of the long-running Siemens scandal, where 64 suspects - 13 of them Germans – are to stand trial in a Greek court over the €70 million bribery allegations, which had the company paying a €330 million fine in 2012. And Siemens is joined in the hall of shame by German defence contractor Ferrostaal, and construction giant Hochtief, both of which have been implicated in major corruption scandals.

Even prestigious German car makers have been implicated in tax evasion scams, culminating in €600 million in fines levied on BMW, Mercedes-Benz and Opel for a fraud which was estimated to have cost the Greek state as much as €4 billion.

Then there were the bribery scandals over the sale of 170 Leopard 2 tanks built by the German concern Krauss-Maffei Wegmann, in what has been described as a cesspool of Greek-German corruption, that has involved multiple German defence contractors.

Not only German companies have been involved though. A bribe of $3 million for the purchase of Russian anti-tank missiles has been identified, and $1.7 million for a Russian anti-aircraft missile system. 

A sum of €250,000 was paid for equipment from Brazilian company Embraer; €240,000 for radar systems from Saab; €800,000 for Mirage fighter jets made by French arms maker Dassault; $1 million for a deal to update US-made M48 tanks; and €400,000 for the purchase of  Exocet anti-ship missiles made by MBDA- a firm jointly owned by BAE Systems, EADS and Finmeccanica of Italy. 

Says one commentator:
It's convenient to blame the culture of corruption in Greece for the putrefaction seeping from every pore of the economy. The scourge has infected Greek institutions to their roots and is in part responsible for the current economic fiasco. But bribery requires a willing partner. In white-glove Germany, the state religion of exports at any price, come hell or high water, has encouraged authorities to close their eyes when companies spend a little extra to get deals done.

Greece didn't need the weapons, couldn't afford them, and had to pile on debt to buy them … debt that has suffocated the country and has become subject to high and tight haircuts and massive bailouts, funded largely by grumbling German taxpayers. And therein lies a twisted, ironic injustice: German taxpayers have to transfer once again their wealth indirectly and unwittingly to the coddled German export sector.
The point is well made. Germany certainly does not have clean hands on this. But it is also the case that no one who does business with Greece comes away clean. A country which is corrupt to the core also has a devastatingly corrupting effect on all those who deal with it.

This is a point that cannot be over-emphasised. Corruption in Greece is not an aberration – something which can be identified and rooted out. It is Greece – an integral part of society, inseparable from it. If cancer analogies are appropriate, this is the metastatic stage, so embedded that surgery would doubtless kill the patient.

Relentless though my earlier piece might have been, it scarcely scrapes the surface of a level of criminal enterprise which is staggering for its scale and breadth. In one sector alone, as yet unmentioned by us, we see assertions that smuggling and organised crime could have been sufficient to cause Greece's economic crisis.

This is the oil sector and, whether hyperbole or not, oil smuggling is embedded into the social, political and economic fabric of Greece. Annual revenues generated from illegal fuel smuggling are estimated to reach €3 billion (as of 2008).

Such is the scale that, although Greece imports up to 99 percent of its fuel needs, it still manages to record more exports than it imports, through fraudulent documentation.

On major scam is facilitated though bunker fuel (designated for ships) being tax-free. Large quantities are supposedly exported, with the aid of forged documents and corrupt customs officials, only to be sold on the domestic market as heating fuel and automotive diesel. An estimated 20 percent of fuel oil sold on the Greek market comes from this illegal trade.

Greece thus shows a mathematically impossible volume of petroleum exports to neighbouring countries. Bills of lading do not add up as oil tankers depart for their expressed destinations but then turn around and return home to supply the raw stock for the smuggling trade.

Dr. Panos Kostakos, a Greek political analyst, describes oil smuggling in Greece as an illicit enterprise that remains "invisible and untraceable" whose perpetrators remain under the radar and out of the media. "Oil smuggling is organised by actors from the shipping-port community. They have the infrastructure, contacts and technology to organize such illegal schemes. At the top of the pyramid you will find respectable businessmen with political connections, wealth, influence and power", he says.

For this reason, says Kostakos, the Greek media is not free to report on oil smuggling in any depth. "The majority of private media companies in Greece depend heavily on state funding and have strong political agendas", and the universities and think tanks are controlled by the political ιlite. "There is a significant gap in empirical research on organized crime, as if the problem does not exist".

But what surprises Kostakos most, he says, is that no one in Europe seems to understand that the Greek mafia is behind the current economic crisis. "It is a colossal failure of the political elite in Europe who have not communicated this properly to the public". He asks:
Greece has one of the largest black markets in Europe; the highest corruption levels in Europe; a strong political culture based on patron-client relations; levels of trust amongst people and between people and Institutions are lower than in any other country in Europe and there is a sovereign debt that does not mirror the real wealth of the average Greek family. What more evidence do we need to conclude that this is Greek mafia?
A corrupt media, with as many as 600 journalists on the government payroll, however, does not ensure a free flow of information about the failure of the system, so much so that it is remarkable how much information there is to be had.

As we observed before, there seems hardly an area of life in Greece that is not in some way or other tarnished by corruption. One example is the art market "riddled with forgeries". Another is the forgery ring found with more than "1100 altered or falsified passports, 800 ID cards, 100 driving licenses, 65 residence permits," and tens of thousands of items used in forgery including holograms, stamps, and foils.

Yet another is a massive insurance fraud ring and then there is the €2 million recycling scam. To the other examples we have listed, add €12 million embezzled from the Greek tourist board, plus a major insurance fraud, and every type of fraudulent activity imaginable is represented.

But, being Greece, the corruption reaches stratospheric levels. Thus we see bribery and match-fixing in Greek football to an extraordinary extent. Only last month, billionaire shipping magnate Vangelis Marinakis, and owner of Greek champions Olympiakos, was banned from football as an investigation continued into allegations that a criminal organisation was controlling the domestic game.

Evidence includes secretly recorded phone conversations, leading to Mr Marinakis and a number of other high profile figures being suspected of setting up a criminal organisation, conspiring to rig the outcomes of football matches, extortion, bribery and violating the law regulating explosives. The Olympiakos owner and other club and Football Association officials are due to appear before prosecutors on the 20 August.

The investigation goes back to last year, when the Guardian was observing that "corruption is endemic in Greek football".

Then, in Greece, nothing at all is sacred. Last year also, police broke up a racket centred on an NGO called "International De-mining Centre" that had swindled €9 million state funding intended for life-saving de-mining operations in Bosnia, Iraq and Lebanon.

The NGO employed several former diplomats and its director Constantinos Tzevelekos, a former journalist, had funded a lavish lifestyle with his family, living in a luxury villa in Vrilissia, an affluent northern suburb of Athens. Yet the political leadership of the Foreign Affairs Ministry had not only turned a blind eye to allegations. It had actively covered up for those responsible. 

Around 600 NGOs are officially licensed to operate in Greece. In 2011, it was revealed that these organizations had received an estimated €140m in state funding, from 2000 to 2010. In the absence of a clear institutional framework governing the NGOs and lack of coordination when it came to funding them, it is widely perceived in Greece that millions of euros were wasted through corruption and fraud.

One of those NGOs was the "Cycle of Patmos", a group which organised environmental conferences on cruise ships attended by religious leaders and renowned experts. Fourteen people, including ten former executives, were charged with criminal fraud after €3 million went missing.

The group had received state funding from Greece and the EU to organise environmental events from the Arctic to the Mississippi between 1997 and 2009, held under an environmental interfaith initiative led by Ecumenical Patriarch Bartholomew I, leader of the world's 250 million Orthodox Christians. A conference in the Adriatic Sea in 2002 had led to a joint declaration between Bartholomew and Pope John Paul II on the shared Christian responsibility to protect the environment.

As the different level, the Greek authorities have been making a complete mess (quite literally) of waste disposal, with multiple illegal landfill sites, a crisis in Athens and major protests over a replacement site. The Garbage Crisis is regarded as "a stinky metaphor for an economy in the dumps".

What seems the ultimate irony though is a case reported last year, when charges were pressed based on data sent to the Greek Financial Police and the Financial Crimes Squad (SDOE) by the European Anti-Fraud Office (OLAF). The charges involve four companies regarding the funding of EU projects, in which Greek European Commission employees are also involved.

The case is said to involve a massive €25 billion, with the fraud perpetrated by a number of inter-related companies which filed a large number of research projects and used dummy companies to present altered or fake spending documents.

There are indications in this huge fraud that Greek nationals, employed by the European Commission, set the terms of the projects so that the funds could end up to specific beneficiaries in Greece and other EU countries.

And that is not down to the EU. Nor was Germany involved. This was Greek corruption pure and simple, if corruption is ever simple. Greece is not the innocent victim and, whatever the contribution of the EU to the current financial mess, the Greek state and its people must share some of the blame.

More to the point, the "no" campaign needs to be thinking more strategically. What looks to our advantage ain't necessarily the case. Corruption does not play well with the general public and with that huge elephant in the room, we should not automatically assume that Greece is a card that works in our favour.