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Corporate crime on the rise

Slovakia's Financial Police delivered a disheartening message to the domestic business community January 19: While a recently approved law on money laundering brings Slovak legislation on corporate crime up to EU levels, white collar crime itself is on the rise, and police expect the number of investigations in the corporate sector to jump in the year 2001.
Speaking at a conference on financial crime in Slovakia, police officials said that there had been an increase in the incidence of economic and financial crime over the last three years, fuelled by a growing awareness among businessmen of how to commit such offences.
They also said, ominously for the corporate sector, that the impact of such crimes on the sector was increasing.


Head of Slovak Police Ján Pipta (left) and Head of the Slovak Financial Police Jozef Stieranka.
photo: Ján Svrček

Slovakia's Financial Police delivered a disheartening message to the domestic business community January 19: While a recently approved law on money laundering brings Slovak legislation on corporate crime up to EU levels, white collar crime itself is on the rise, and police expect the number of investigations in the corporate sector to jump in the year 2001.

Speaking at a conference on financial crime in Slovakia, police officials said that there had been an increase in the incidence of economic and financial crime over the last three years, fuelled by a growing awareness among businessmen of how to commit such offences.

They also said, ominously for the corporate sector, that the impact of such crimes on the sector was increasing.

"It has grown step by step. Back in the beginning of the 1990s, cases were mostly frauds involving business invoices. Now the cases are bigger and we are having to investigate complicated loan and bank frauds," said Jozef Stieranka, head of Slovakia's Financial Police.

"The influence [of criminal economic activity] on the regular economy is always negative. In Slovakia we can only try to curb its influence on the corporate sector," Stieranka said.

In 1997 the Financial Police laid 68 charges of economic and financial crime with an overall loss to the economy of 3.4 billion crowns ($73 million). By 2000, the totals had soared to 147 charges laid and a loss of 13.8 billion crowns; police are currently working on 229 cases in which damages are put at 69 billion crowns ($1.5 billion).


Financial Police Head Jozef Stieranka has warned that white collar crime is only likely to get worse in the coming years.
photo: Ján Svrček

The crimes investigated cover all types of fraud, embezzlement, damage to creditors, non-payment of taxes and insurance premiums.

Both government officials and sector experts have said that the impact of economic crime on the shape of the corporate sector was and will remain significantly negative, and added that it would take at least one generation for the corporate sector to recover from what they say is a deeply-rooted illness.

"The impact of economic crime on the corporate sector is pernicious. Whether it's money laundering, asset-stripping or undeclared taxes, it all has a massive influence on the sector's current stagnant state," said Katarína Mathernová, an advisor to Deputy Prime Minister for Economy Ivan Mikloš.

One of the biggest cases in recent years involves an unknown number of bills of exchange drawn on the Slovak state gas utility SPP by former SPP director Ján Ducký. Ducký was murdered by an unknown assailant in January 1999; police have laid charges in the SPP case against a perpetrator of 350 million Czech crowns in damage, but fear there may be as many as 25 other bills in existence.

Although figures show that police are getting better at solving fraud cases, such as mismanagement and fraud at the SLK shipyards in Komárno, many crimes committed at Slovak firms which were privatised during the former government of Vladimír Mečiar have yet to be investigated.

Representatives of NGOs have in the past said that the government should make a greater effort to wrap up more serious cases of corporate crime in order to advertise its battle against economic and financial crime. "I think that there is often a lack of political will to do this. Efforts should be improved," said Emília Sičákova, president of the NGO Transparency International Slovakia.

But Stieranka explained that the investigation of economic crime is more complex than that of common crime, and requires coordination across several institutions, an often laborious and difficult task.

"It's not like a murder, for example, when the police have all traces of the crime in front of them. We have to find our clues through complicated investigation. People that we investigate have many opportunities to hide the proof that we are looking for. Look, for example, at Belgium. There it takes five, six and sometimes even seven years to finish a case," he said.

Making progress

The situation in the area of economic and financial crime in Slovakia, is, according to the Financial Police, similar to the situation in neighbouring Czech Republic, Hungary and Poland. "We have good cooperation with colleagues from the Czech Republic and know that they are facing similar problems. Also, our legislation, including the recently approved law on money laundering which we expect to have a positive influence on corporate crime, is at the same level as theirs," Stieranka explained.

The laundering law, which took effect at the beginning of January, widens the number of institutions that are obliged to inform the Financial Police of suspicious transactions from banks to stock, bond and commodity exchanges, insurance companies, post offices, auditing firms, tax advisors, and also casinos, exchange offices, real-estate agencies and similar institutions.

It also forbids the holding of anonymous accounts in banks as well as anonymous ownership of shares, something frequently abused in the past as it allowed people who received bribes to put cash into anonymous bank accounts and hide their misdeeds.

Other significant legal measures aimed at recovery of the corporate sector and curbing economic and financial crime include a revision of the Commercial Code, expected to be approved this year, and the introduction of a new Criminal Code, which is expected to be approved in 2002, as well as overall reform of the judicial system.

Problems remain

But even with all necessary legislation improved, healing the wounds of the corporate environment will take time, government officials and experts warned.

"It's one thing to have legislation and another to apply this legislation. We can be as compatible with the EU as we want, but until the feedback from this legislation is seen, there is not much to talk about," Mathernová said.

Corporate sector experts agreed with Mathernová. "Practical application of this legislation is difficult because society, and even the business sector itself, tolerates and even accepts these kinds of [criminal] activities," said Karol Balog, director of Agency for Industrial Development and Revitalisation (AIDR).

He added that there is a lack of initiative to change this current acceptance. "People's thinking has to be changed, and the law doesn't carry out that change. It will therefore take several generations to change things and minimise economic crime to the point that it won't slow down the performance of the corporate sector," Balog said.

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