Friday, June 20, 2008

Canadian & U.S. Investors Mistreated in Poland

The 10th Global Survey on Corrupt Business Practices, published in May 2008 by the Ernst & Young, whose roots go back to the 19th century and to its founders Arthur Young and Alwin C Ernst, revealed that “Almost every fifth Polish company (18%) experienced an incident of corruption, which is more than double the figure reported in developed markets (8% affirmative responses). The level of corruption in Poland is twice as high as in developed countries.”

“But it is in Western Europe that 25% of companies perceive corruption as a major threat to business, while only 16% of companies in Poland share this opinion. Companies operating in developed markets have more trust in the effectiveness of law enforcement agencies (85%) than their Polish counterparts – only 54% of Polish companies share this approach. According to Mariusz Witalis, Fraud Risk Management Director of Ernst & Young Business Advisory, the survey findings clearly indicate that the awareness of threats related to corruption is not accompanied by appropriate steps taken by companies in order to implement mechanisms that would prevent the occurrence of such risks. “We realise corruption is a problem,” says Mariusz Witalis, “but we are not really sure how to deal with it.”

The recent Ernst & Young survey encompassed 1,180 senior executives from major companies in 33 countries worldwide. It was not focused on foreign companies exposed to corruption practice in the respective countries in which they were doing their business. In Poland, there is still deeply embedded a “post-Communist” way of doing business, especially when business is being made between state-owned and private enterprises. Polish state-owned companies are mostly run by politically appointed managers, who display loyalty not to their own firms but to their political parties, the state administration and also to informal political-business groups which sometimes could be simply called mafia-type organizations.

After the regime change in 1989, Poland embarked on a large-scale privatization drive. Selling state property to Polish and especially to foreign private business provided a unique opportunity to dishonest state administration officials, local government officials, some managers and political party activists to quickly enrich themselves on state property. Secret deals were being arranged, involving forced bankrupcy of some enterprises to be sold at the lowest posssible value, with bribes paid to their “privatizers.” Much have changed to better since the early 1990s, but still there are several opportunities for corrupt businessmen and officials. Their methods became more “sophisticated” but their purpose remained the same: to make quick money or to obtain positions of control over state property turned private.

Foreign business is not without blame, either. As the fight against corruption in Poland has been intensified and several special services are now involved in the investigation of these crimes, many cases of bribing officials by big international corporations and powerful foreign national firms are under investigation. These include bribing physicians, hospital managers and even high government officials by known pharmaceutical companies, suspected sales of major Polish industries to foreign firms (below their real value), and even some attempts to create “cartels” to impose higher prices of some indispensable industrial products, like cement.

Bribes are not the only problem, but corruption certainly requires “two to tango” in order to complete a dishonest deal. A link between Polish state-owned companies and foreign investors provides many such opportunities. A clear example of corruptive environment, still prevailing in Poland, could be the case of an unfinished grain terminal in the Baltic port of Gdansk, a joint American-Canadian investment.