Whether the most recent measures aimed at curbing graft and balance sheet fraud in Italy will work remains to be seen. But the penalties that Prime Minister Matteo Renzi secured from parliament as part of a new anticorruption law passed in May 2015 are significantly stiffer anyway.
The new law increases prison sentences for corruption by an average of two years, up to a maximum of 10 years for common offenses involving bribery or offering or demanding favors to obtain public contracts.
Recent high-profile arrests of politicians and businessmen over graft allegations suggest that past and recent anticorruption laws are a step in the right direction. Pending cases involve the alleged payoff of public officials at the 2015 Expo in Milan, a €5 billion Venice flood barrier, and public contracts awarded by the City of Rome, which is part of the so-called “Mafia of Halfway World” scandal.
But the serious nature of those charges also highlight that more action (and persisting political will and vigilance) is needed if corruption is to be successfully tackled.
As the Brussels-based think tank Bruegel observed, further regulating lobbyists, promoting the use of job rotations within the public sector, restructuring public examinations, and reducing the monopoly power of public utility companies could be strong indications that the Italian political system is determined to eradicate corruption from the country’s soil.
According to the Italian Supreme Audit Institution, the economic impact of corruption in the public sector is estimated at €60 billion a year, equivalent to nearly 3.0% of GDP. The Italian Court of Auditors estimates that corruption amounts to as much as 40% of total public procurement value.
Indeed, Italy is ranked 69th out of 175 countries in Transparency International’s Corruption Perceptions Index for 2014. It is perceived to be the most corrupted country among EU states, on a par with Greece, Bulgaria, and Romania.
Not surprising, as far as businesses are concerned, respondents to a survey for the World Economic Forum’s Global Competitiveness Report see corruption as one of the most serious problems when doing business in Italy. Corruption means that firms without political connections might operate at a competitive disadvantage.
The rule of law is also weak in Italy. Investors may encounter corruption in their dealings with the state. The courts are susceptible to external influence, undermining the impartiality of rulings, and the administration of cases is excessively slow.
A 2014 Eurobarometer survey revealed that 90% of the respondents (the highest value of the European Union’s 28 members) believe that corruption is part of the business culture in Italy, while 75% (the second-highest value in the EU28) agreed that political connections are key to succeeding in business.
Dun & Bradstreet advises customers to plan for corruption and establish clear guidelines for dealing with corruption and unofficial payments when operating in Italy.
Corruption eludes a simple, globally accepted definition. Descriptions range from “moral perversion” and “dishonest proceedings” to more complex ones such as “abuse of power for private gain” or “positioning oneself to acquire personal benefit.”
But the business costs of corruption and its dire economic consequences are much clearer. Besides creating compliance risks, corruption leads to higher production costs for both domestic and foreign companies.
As a result, both the private and public sectors suffer deadweight losses as investment projects become more expensive and bureaucratic procedures drive up costs in both money and time required for completion.
Italy simply cannot afford to allow corruption to continue as it has in the past.