Safeguarding EU funds against fraud and corruption through the civil control mechanism of Integrity Pacts Budapest 17-18 February 2014 Address by the Ambassador of Switzerland Mr Jean-François Paroz Mr. Executive Director, Distinguished guests, Dear colleague Schnellmann, Director of the Swiss Contribution Office, Esteemed representatives of the media, Ladies and Gentlemen, I would like to thank Transparency International Hungary, the European Union Hercule Programme and OLAF for organising and supporting this conference and for offering me the opportunity to address this distinguished audience. There are several reasons why I am pleased to attend today this International conference on Fraud and Corruption in Budapest. - First of all, because preventing corruption is important in every country, including Switzerland. - Secondly, because preventing corruption, promoting transparency and integrity in the implementation of common projects within the Swiss Contribution are priorities for both, Switzerland and Hungary. - It is our aim to promote social and economic cohesion within the enlarged European Union. In 2006, 53.4% of the Swiss citizens who participated at a federal vote concerning the Swiss Contribution Programme agreed on a 1 billion Swiss francs contribution for fostering cohesion in Europe. As you can see, 53% was a majority, but it was clearly not an overwhelming majority. The Swiss Contribution Programme in Hungary in the amount of HUF 31 bn (CHF 131 million) is now in full implementation. It comprises 37 projects. Ensuring the correct use of funds is also important to earn the continued trust of the Swiss parliament as well as the Swiss population, as taxpayers and decision-making entity. - Lastly, I am pleased to attend this conference, because I was honored of hosting the signing ceremony for the Integrity Pact related to the water supply project in Ózd last year in my residence. This conference is a precious opportunity to be updated on the practical experience with the implementation of the Integrity Pact at Ózd. We can all agree that corruption is a major worldwide challenge. No country is free from it, as the Corruption Perceptions Index 2013 shows, and therefore preventing 1
corruption is an important issue. Corruption affects not only the developing or transition countries but it often hampers and slows down economic development in the developed countries. 1. Preventing corruption in Switzerland - legal framework Let me continue with a few words on the Swiss criminal law on corruption and recent developments in this field. Switzerland has gradually intensified its fight against corruption in recent years and has been playing an active role, both nationally and internationally. Amongst the different national and international measures Switzerland signed the OECD Convention on Combating Bribery of Foreign Public Officials in 2000, the United Nations Convention against Corruption in 2003, and the Council of Europe's Criminal Law Convention on Corruption in 2006. To meet those international standards the Swiss parliament extended and tightened its criminal law on corruption. In particular, penal provisions governing the bribing of domestic and foreign officials, as well as bribery in the private sector have been thoroughly reviewed and revised. A big change was brought about by the new Art. 102 of the Swiss criminal code, that allows not only to prosecuting individuals but also companies for corruption. Until now, fifteen years after signature of the OECD-Anti-Bribery Convention, more than 306 companies and individuals have been sanctioned for foreign bribery. Today approximately 320 investigations are ongoing. There have also been several confiscations of bribes and proceeds of bribery. Furthermore, there have been 3 convictions of foreign bribery in Switzerland since the entry into force of the OECD-Anti-Bribery Convention in July 2000. Further developments of the Swiss criminal law on corruption remain work in progress. Lately, there have been a few new legislative developments of which I will mention three. Firstly, since January 2011, employees of the Swiss Confederation have the obligation to report prosecutable violations or wrongdoing to the prosecution authority, superiors or the Swiss Federal Audit Office. Secondly there is an ongoing legislative proposal aimed at including new provisions concerning bribery in the private sector into the Penal Code instead of the Unfair Competition Act. At the international level, Switzerland and other countries will present their written follow-up Phase 3 corruption report to the OECD in March 2014. Last, but not least, the Swiss Government has also increased its domestic awareness building efforts in recent years. For instance, the State Secretariat for Economic Affairs (SECO) that is the competence center of the Swiss Government for economic policy and external economic affairs issued in 2008 an information brochure entitled "Preventing Corruption - Information for Swiss Businesses Operating Abroad". 2
It is not without irony that SECO, which is also one of the two entities in charge of administering the Swiss Contribution is currently confronted with its own serious corruption case. A Head of Division in its Labor Directorate allegedly accepted bribes from an IT contractor in the amount of tens of thousands of Swiss Francs over a number of years. SECO has asked the Federal Prosecutor's Office to open a criminal investigation. The minister in charge has now also opened an administrative investigation with a view to review the internal rules and procedures at SECO. Initial results of the administrative investigation are expected in a few months time. This case shows once again that effective prevention is important in every country, including Switzerland! 2. Preventing the misuse of funds in the Swiss Contribution Let me now give you a brief outline of the measures foreseen in the Hungarian-Swiss Cooperation programme to minimise the risks of misuse of funds and corruption At the outset, I wish to emphasise that the correct use of funds is a prerequisite for the successful implementation and the credibility of the Hungarian-Swiss Cooperation Programme. Hence, preventing the misuse of funds and corruption in this Programme is a common concern shared by Hungary and Switzerland. In Art. 10 of the bilateral Framework Agreement governing the implementation of the Programme, both governments declare their intention of combining their efforts in fighting corruption in all its forms. The Article further states that "any act of this kind may constitute sufficient grounds to justify termination or annulment of this Agreement, the respective Project Agreement, the procurement or resulting award, or for taking any other corrective measures laid down by applicable law". These are quite drastic measures. This common concern also led to a number of initiatives. As an example, in 2009, the brochure "How to prevent corruption" was prepared as a joint project of the Swiss Contribution Office and the Corvinus University of Budapest based on the SECO brochure on the same topic mentioned earlier. A second point I wish to highlight is the fact that Hungary as the partner country is responsible for the implementation of the Programme. In other words we primarily rely on the Hungarian country system in terms of reporting, monitoring, supervision, control and irregularity procedures. This also means that the Swiss government can rely on the irregularity procedures of the Hungarian coordination and supervisory bodies, the National Coordination Unit and its intermediate body VATI. In practice, this also means that there are regular formal and informal exchanges of information and consultations between both parties at operational level on all aspects of programme implementation, including the correct use of funds. Yet, Ladies and Gentlemen, the Swiss Government is accountable to Parliament regarding the correct use of the Swiss Contribution funds. For this reason, the Swiss 3
government has a number of additional measures at its disposal to undertake a second-tier monitoring of programme implementation, in general and to minimise the risk of misuse of funds and corruption in particular. These measures are of a preventive nature or can be applied in case of a suspicious or committed irregularity. They are available at all stages of the project cycle and beyond. The main ones are: 1. Local Presence: Opening of a Swiss Contribution Office in Budapest with local staff members led by a Swiss Head in 2007. 2. Relevant Provisions in the bilateral Framework Agreement (as mentioned earlier) and in the respective Project Agreements related to the riskiest area of the project cycle. This includes anti-corruption clauses/integrity clauses at contractual level, e.g. in large construction contracts Let me illustrate this with a few additional examples: At the project selection stage: We have an autonomous selection of projects by Switzerland upon proposal of partner countries At the tendering and contract awarding stage: We have a review of major tenders and contracts, including Swiss non-objection required for tender documentation of major tenders (over CHF 600'000) Procurement audits can be requested/undertaken by Switzerland at any time (case of suspicion) At the implementation stage: There is a right of examination of the Swiss Government at any time (visits, assessments, evaluations) A review of interim/final financial audits is undertaken by a certified national (Hungarian) organisation We have a pre-financing of cost by Hungary and no payments by Switzerland without a reimbursement request underpinned by a status report Finally, we have also a right to halt repayments in case of irregularities. 3. The Integrity Pact Pilot Scheme of the Ózd Project Last but not least, let me mention one final measure, the Integrity Pact pilot scheme of the Ózd Water Supply Rehabilitation Project. As part of the Swiss Contribution, Switzerland is financing four large water supply projects, including the Ózd Water Supply Rehabilitation Project with a budget of more than 1.8 billion HUF (more than 8.4 million Swiss francs). 4
On 5 December 2012 the Integrity Pact was ceremonially signed at my Residence by the Mayor of Ózd representing the Executing Agency, by the independent monitoring expert commissioned by the Swiss Contribution Office and by Transparency International Hungary as advisor to this initiative. Present were also high level representatives of the National Coordination Unit and VÁTI. The Ambassador of Norway, as well as the representatives of the Ministry of Foreign Affairs, the Ministry of Public Administration and Justice as well as that of the State Audit Office, the Directorate General for Audit of European Funds and the Central European University also attended the event illustrating the potential this tool might have. As you know, this scheme is an independent monitoring system during procurement as well as the construction phase to ensure transparency and reduce the risk of corruption in public procurement. From a Swiss perspective, the Integrity Pact pilot scheme of the Ózd Water Supply Rehabilitation Project supplements and partially substitutes the Swiss government's own control measures related to that particular project. I am keen to learn during the roundtable tomorrow how this scheme evolved and what the interim lessons learnt at the end of the procurement phase are. Ladies and Gentlemen, I wish to conclude my address saying, that I strongly believe that the Hungarian-Swiss Cooperation Programme has an adequate system of measures at its disposal to monitor programme implementation and to minimise the risk of misuse of funds and corruption, taking into account that we rely on the country system approach and have budget constraint (5% of total contribution for the administration of the programme). Yet, we can never be sure as we all know that the risk of misuse of funds and corruption cannot be reduced to zero. However it is our duty to do everything to make it as close to zero as possible. I wish Transparency International and all the participants an informative and successful conference. Thank you for your attention. 5