Slovakia: A maze of uncertainty?
Slovakia is still recovering from a political crisis and public outrage triggered by the killing of journalist Jan Kuciak in February who had been investigating organised criminal activity and corruption in the country. However, overcoming institutional stagnation and clientelist networks – and the associated business risks – will require political will, something that remains largely absent.
2018 has been a turbulent year in Slovak politics. The crisis following Kuciak’s murder brought down long-standing Prime Minister Robert Fico, and the coalition government narrowly managed to survive under Fico’s successor, Prime Minister Peter Pellegrini of Fico’s Smer-Social Democracy (Smer-SD). On the surface, the political situation has started to stabilise. However, Kuciak’s death once again brought to the fore the extent of criminal and corrupt networks in the country, and the inability and/or unwillingness of political actors and institutions to counter such practices. The ongoing investigation into Kuciak’s killing will be subject to close scrutiny. Successive scandals in the past several years have fuelled public discontent over political corruption and impunity. Hollow political commitments are unlikely to appease the population. Failure to get to the bottom of the Kuciak case – including prosecuting all those involved – would likely fuel antigovernment sentiment, potentially sparking renewed unrest.
Consequences for business
Smer-SD has presided over stagnant anti-corruption efforts and an increasing politicisation of institutions since 2012. Its rhetorical commitment to countering corruption has not been coupled with the political will to reform or provide the authorities with the independence necessary to go after the big fish. There is little to indicate that Fico’s ousting will bring about more far-reaching changes, as he remains a key decision-maker behind the scenes. Given these political dynamics, genuine reforms to strengthen institutions are unlikely to materialise under the current government. As a result, the threat from white collar crime and the associated risks to international businesses are likely to persist. Employees and business partners engaging in bribery and other fraudulent activity will continue to pose a notable threat to businesses, as many corrupt and criminal networks active in the country have not been prosecuted. Impunity towards such crimes – particularly for influential local individuals and businesses – has helped entrench such practices among local officials and businesses – including prospective partners.
Revelations of misconduct by third parties can expose international companies to scrutiny under both domestic and transnational anti-corruption frameworks, which can result in financial and reputational damage. Accordingly, companies need to take appropriate measures to mitigate the risks posed by white collar crime. Effective risk management includes early warning systems, such as threat and risk monitoring, which helps ensure that the business understands and – if necessary – can adjust to changes in the risk environment in a timely manner. Implementation and enforcement of internal compliance programmes are necessary to mitigate the threat from employees and third parties. Key components include counterparty due diligence, pre-employment screening and transaction testing. Promoting a transparent organisational culture and providing training and monitoring of key policies such as anti-corruption standards and codes of conduct to local staff can also help reduce the threat from inside the organisation. Companies must ensure that they are prepared for the worst by putting in place effective crisis management and contingency programmes. These include procedures for handling white collar crimes issues such as dawn raid plans, as well as tried and tested business continuity plans in case of subsequent prolonged business disruption.
Case study: fraud investigation
A major concrete manufacturer asked Control Risks to conduct an investigation into the CEO of its joint venture partner in Slovakia, following suspicions that the CEO had been engaged in fraudulent activities. Our investigation revealed that the CEO was involved in a web of businesses, three of which presented a conflict of interest. In some cases, the CEO’s business partners were principals of the client’s JV partner, which was also a competitor. Our enquiries showed that the CEO was favouring the competitor’s business interests rather than the client’s. Our investigation provided the client’s legal team with enough evidence to take disciplinary measures against the CEO, ultimately resulting in his dismissal. The client decided to implement a new code of conduct and develop a strategy to limit the influence of the aforementioned competitor.