Spain | Corruption and its role in Spain’s political paralysis

Spain | Corruption and its role in Spain’s political paralysis

Revelations of corruption at the highest levels of power in Spain, particularly among the country’s two largest political parties, has seriously undermined the public’s trust in government.

Spain has not had a full time government for more than 280 days. On 2 September 2016, interim prime minister Mariano Rajoy lost an investiture vote, substantially increasing the likelihood of another election before Christmas, which would mark the third in the course of a year.

The political elite’s inability - or unwillingness - to properly tackle corruption in Spanish politics and society has significantly contributed to the current deadlock. In recent years, there have been a series of corruption investigations and prosecutions of prominent business people, senior politicians from the two main political parties, Rajoy’s People’s Party (PP) and the Socialists (PSOE), and even members of the royal family. These high-profile cases have unsurprisingly undermined the public’s trust in the institutions of power, paving the way for two new parties, Podemos (‘We Can’) and Ciudadanos (‘Citizens’), both of which have run on anti-corruption platforms, to open up what was a de-facto two-party political system.

Shortly before Rajoy’s failed investiture vote, Ciudadanos made the latest of its coalition offers to the PP that contained various demands regarding anti-corruption efforts, including a ban on anyone under investigation for corruption holding public office, the removal of parliamentary privileges that shield MPs from corruption investigations, and the establishment of a parliamentary commission to investigate alleged funding fraud within the PP. Rajoy gave the demands short shrift, resulting in the continuation of the current stalemate.

The PP in particular is struggling to come to grips with the demons of its past (and present). In the most prominent (and ongoing) case, public prosecutors allege that the party’s treasurer Luis Bárcenas ran a network of slush funds from 1990 to 2009 for the unauthorised receipt of funds from business groups in exchange for major public contracts and other favours. The Bárcenas case is a spin-off of the earlier Gürtel investigations that led to the conviction of Spanish businessman Francisco Correa and uncovered a vast kickback scheme within the PP. Some 40 individuals, including three former party treasurers, businessmen and local party officials are awaiting trial.

Several of the named individuals in the Bárcenas case are representatives of domestic construction companies, including executives of leading building companies OHL, Sacyr Vallehermoso and FCC. Construction sector companies have been implicated in major corruption investigations at a regional level too. Most notably, in March 2016 16 representatives of Spanish construction group Ferrovial were named as defendants on suspicion of paying some €5.9 million in kickbacks to the Catalan party Convergència Democràtica in exchange for public works contracts. A trial date has yet to be set.

Spanish anti-corruption prosecutors are also increasingly looking beyond their own shores. Spanish business group Duro Felguera is currently being investigated by the Spanish Prosecutor against Corruption and Organised Crime in relation to allegations that it paid €46 million to a company controlled by a former Venezuelan government deputy minister of energy in 2011, apparently in exchange for public procurement contracts for the construction of a power plant in Venezuela.

Such extra-territorial efforts have been facilitated by various recent improvements in the legislative framework on anti-corruption. In December 2010, the Spanish Criminal Code was amended to introduce new provisions on public and private corruption and the bribery of foreign public officials. The code was updated again in March 2015 to ensure that state-owned companies fall within the remit of the corporate liability regime. These regulatory developments clarify several previously opaque aspects of the corporate compliance regime in Spain, considerably reducing risk for foreign companies looking to invest in the country. Spain’s anti-corruption legal framework is now much more closely aligned with the OECD’s recommendations and is in practice similar to that of the UK Bribery Act.

However, important obstacles remain. The institutional framework around corruption remains chronically weak with regard to oversight, monitoring and detection. Overt political corruption in Spain is often concentrated at the regional and local levels of public administration, whereas the central administration suffers from lack of transparency and inefficiency. For instance, Spain has no code of conduct for parliamentarians, nor does it have lobbying regulations in place. Although a new access to information law entered into force in December 2014, its haphazard registration system has undermined its efficacy.

Lack of transparency has enabled other systemic deficiencies - including opaque public procurement processes, public expenditure mismanagement and tax fraud - that perpetuate the political and economic crisis in Spain. While a more activist judiciary and a well-organised network of civil society organisations are providing a much-needed counterweight to the inertia of the ruling political class, lasting structural change will only be possible with a firm commitment to cleaning up the corridors of the political establishment.

Image: Spain Corruption/Andres Kudacki/AP/Press Association 

Author: Moritz Reinsch, Associate, Business Intelligence
Published: 27th September 2016
Categories: Company News