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Bureau of European Affairs
James W. Pardew, Principal Deputy Special Advisor to the President and Secretary of State for Democracy in the Balkans
Statement before the House International Relations Committee,
Washington, DC, July 19, 2000
Mr. Chairman, I welcome the opportunity to be here today to discuss our programs and strategies for addressing crime and corruption in Bosnia.
Today I will update the committee on the nature of corruption in Bosnia and our strategy for dealing with it. I will also respond to the specific points raised in the Government Accounting Office (GAO) report.
The Impact of Corruption in Bosnia
After concluding the Dayton agreement, we faced a country ravaged by war and stuck with the vestiges of a communist economic system and mind set. Democratic concepts of accountability to the public and transparency are still new to most Bosnians. The economic power structure continues to enable the large mono-ethnic parties to sustain their party apparatus and exert their influence at all levels in society. These parties divert funds from the companies they control, evade tax collection, and generally engage in fraudulent behavior that goes unaccounted for as they hold many important governmental positions. Finally, the Government of Bosnia does not control its borders. Unregulated borders are an open invitation for criminal activity, and a weakened police and judicial system fosters criminality.
The problems of corruption and crime in Bosnia should be considered in the context of what has been achieved there since the war. Great strides have been made in security, refugee returns, and other critical elements of Dayton implementation. That said, we agree with the basic thrust of the GAO report that corruption and crime are endemic problems in Bosnia. Crime and corruption seriously inhibit Dayton implementation and economic and political development. The inclination of the current political leadership is to continue to do business as usual. However, there are a number of reform-minded and effective Bosnians who want change and are willing to work hard for it. The entire thrust of our assistance program is to help them establish a peaceful, transparent, and democratic society that is based on the "rule of law" and offers economic opportunity. Our message to the people of Bosnia in the run-up to parliamentary elections this November is that they deserve leaders that can make these changes.
We note that the GAO found no evidence of significant fraud or misuse of U.S. Government assistance funds. We attribute that to our financial controls, which we believe are sufficiently strict to protect our interests.
Adjusting U.S. Government Priorities
Let me briefly review our investment in Bosnia and how the focus of our assistance program has shifted. We pledged and disbursed $1.007 billion from 1996 to 1999 in the Bosnia Priority Reconstruction Program primarily for critical post-war requirements. This represents 18.5% of the $5.4 billion total international civil program for Bosnia. In FY 2000, we are spending $100 million in SEED and $47 million in peacekeeping operations (PKO), still in the same overall burden-sharing proportions.
As we noted in our written response to the GAO report, overall SEED funding for Bosnia fell from $215 million in FY 1998 to $100 million this fiscal year. This is a 53% decline, and $30 million below the level set by Congress.
In 1998 when completion of the most urgent reconstruction projects was already in sight, we reevaluated our assistance program. As a result, funding for the early needs has dropped to zero. In the course of one year (FY 1999 to FY 2000), we have phased out reconstruction assistance, which was $50 million in FY 1999; new funding for business lending, also $50 million in FY 1999 (although the on-going multi-year program will continue into FY 2001); and direct budgetary support, which ended after a $17 million Economic Support Fund appropriation in FY 1999.
Beginning with the 1998 reassessment, our focus shifted to helping Bosnia begin to reform itself as a stable, peaceful, free-market democracy that can function without the heavy engagement of the international community. While our assistance funding to Bosnia started a sharp decline in FY 1998, we have maintained funding for economic reform at about $24 million annually. This goes for programs including budget transparency, closing out party-controlled payments bureaus, and setting the foundation for large-scale privatization. We are also emphasizing judicial reform, increasing funding from $780,000 in FY 1998 to $5 million this fiscal year.
Strategy for Dealing with Crime and Corruption
The Office of the High Representative and the U.S. agree on the basic thrust of an anti-corruption strategy. This strategy includes a comprehensive list of anti-corruption measures targeting the financial sector, judicial reform, privatization, accountancy, good governance, independent media, and open and transparent elections. In addition, we have established an anti-corruption task force in Washington to develop this effort.
Fighting corruption and crime requires action in two general areas: The first is reform of the political and economic structure. The second is establishing the "rule of law" with effective enforcement. Bosnia must achieve major progress in both of these areas if its is to counter current levels of corruption and crime.
Political and Economic Reform
I have already mentioned upcoming elections as a potential road to political reform. Successful reform also requires a new and transparent legal and structural framework. The international community has identified over a dozen pieces of specific legislation and administrative actions to restructure the Bosnian Government, many of its functions, and the economy. The most important of these define and prohibit corruption and conflict of interest, establish transparency and accountability, establish a viable basis for the generation of state revenue through tax and customs reform, set the legal foundation for a viable financial and non-corrupt financial sector, and establish a viable health and pension system. These legislative and administrative actions are at various stages of completion. If local leaders refuse to act on them, we will push for the use of the international authority of the High Representative to impose these measures.
The Bosnian Government must also develop strong central government institutions. The entity governments must eliminate or restructure the institutions and businesses that have been important sources of funding for the anti-Dayton forces within the nationalist parties.
The most important items on this agenda include:
- The formation of an adequately paid, well-trained professional civil service that would be resistant to corruption;
- Overseeing and modernizing effective, impartial and professional law enforcement and judicial bodies so that they are resistant to corruption; and
- The establishment of a strong, central treasury.
These three are immediate priorities of the new Council of Ministers. Judicial reform, including the vetting judges, is getting underway. We expect to see significant progress on the development of professional and impartial law enforcement and civil service over the next year. We also expect the establishment of a central treasury within the same timeframe.
The other high priority tasks include:
- The abolition of the payments bureaus, which are a major source of funding for the nationalist parties. This process is on schedule for closure by the end of this year.
- Creation of strong, central regulatory authorities for the financial telecom and power sectors, which have been the major cash cows for ruling parties; The Republika Srpska just signed a commitment last week that we expect will lead to establishing a central regulatory authority for the power sector and open the road to the Power III Project. This is a $270-million power infrastructure project led by the World Bank and also funded by other, European donors. One of the success stories is the progress so far on establishing effective banking supervisory agencies and regulatory framework. The financial sector has made enough structural progress to recently attract the establishment of Bosnia's first full-service foreign bank. The international community is working actively with the Bosnians on strengthening the existing telecom regulatory body to enable rapid privatization of the telecom sector and the introduction of vigorous competition.
- The privatization of key industries, which must be undertaken in a way that will break the industry's ties with nationalist parties and clean out corruption-prone management who are vestiges of the communist era. The U.S. is leading the effort to move quickly on large-scale privatization of over 100 key business entities.
- The establishment of effective auditing organizations to search out and deal with fraud and corruption. We are providing $1.3 million in funding to support this effort.
Enforcement
The second part of our anti-corruption strategy is the enforcement framework, which subdivides into police enforcement and judicial response.
The challenge is great in Bosnia because until recently the police have lacked even the most basic law enforcement tools for policing in a democracy. With the help of the U.S. and other donors, IPTF's mission to restructure, downsize, train and equip the Bosnian police has helped these forces acquire many of the basic tools they need to function. It also has enabled them to begin in recent months to build more complex capacities to take on problems like organized crime.
The IPTF recently established a joint task force (JTF) to monitor high profile investigations. The JTF is operational in both entities, and in many cases is co-located with local criminal investigative units. The JTF handled approximately 30 cases in 1999, is currently overseeing 120 cases, and has assisted INTERPOL with an additional 50 cases. The JTF is currently being expanded.
There are also two FBI agents assisting the Bosnians and international community in several high profile investigations and helping the Bosnian police further develop their anti-organized crime capacities.
To give the police the more specialized skills necessary for complex investigations into organized crime and corruption, the U.S. has provided training and developmental assistance. Later this year, additional assistance will include training in major case management, public corruption, and transnational money laundering. The U.S also is funding an organized crime advisor to begin duties later this year and who will coordinate specific anti-organized crime training and technical assistance, and provide advice for revising or developing appropriate legislation to address OC and public corruption. To improve the integrity of their officers, the Justice Department's International Criminal Investigative Training Assistance Program (ICITAP) is working closely with police in both entities to establish professional standards units (PSU) and promulgate codes of ethics for police. The units, present in nine of the ten Federation cantons and in the Republika Srpska, conduct internal investigations into alleged police misconduct. So far, PSUs have investigated over 380 cases, of which nearly 170 have been substantiated. Of those, over 100 have been referred to disciplinary boards, with sanctions ranging from written reprimands to dismissal.
We also support the work of IPTF's non-compliance unit, which audits the practices of local police organizations and investigates reports of misconduct or anti-Dayton actions by local police. On the basis of investigations, local police can be disciplined or even dismissed from service. As an example, the audit of the police in Stolac resulted in the entire force being put on probation for almost all of 1999. Audits have also been conducted of the police academy operations of both entities to verify appropriate procedures for selection and training of recruits.
The U.S. recently donated $1.95 million to aid in development of the multi-ethnic State Border Service, which began initial operations at the Sarajevo airport last month, under IPTF supervision. This is the first armed joint institution in Bosnia, and will greatly increase the ability of the Bosnian Government to secure its own borders, and it will help prevent the trade in illegal goods and disrupt trafficking in persons.
Additionally, the U.S. Government is transferring this month $1 million to expand operations of the Anti-Fraud Unit (AFU) of OHR (from SEED). Starting next month, the AFU will be headed by a German judge with experience in fighting economic crime. It focuses on investigating high profile economic crimes, including those related to the privatization process. The AFU produced an anti-corruption strategy in February 1999, many elements of which are now being implemented as I have been describing in my testimony.
Judicial Reform
A democratic Bosnia, based on the rule of law, cannot be achieved without reforming the Bosnian judiciary. For several years now, the international community has focussed on the problem of Bosnia's weak and politically influenced judiciary.
Bosnia's judicial system needs a major overhaul. Members of the pre-war judiciary, although highly skilled, were trained in a communist approach that did not contain the essential elements of judicial independence. Secondly, during the war, many qualified legal professionals fled or were killed. The bottom line is that the majority of judges within the current judicial system are ineffective and/or corrupt. Judicial vacancies have been filled by the nationalist parties that were formed during the war, resulting in often poorly trained and politically-driven judges and prosecutors.
From the inception of the Dayton Peace Process, the American Bar Association's Central and Eastern European Legal Initiative (CEELI), NDI, IRI, OSCE, the Council of Europe and others have been engaged in efforts to help build up the "rule of law" in Bosnia. As in the financial sector, however, too many political party controls over appointments still remain in place. Reforms, including training, vetting, and the introduction of court police, are underway to professionalize the judiciary and to strengthen emphasis on individual rights.
In July last year, the Office of the High Representative produced a "Comprehensive Judicial Reform Strategy" which surveys the current situation, cites aspects that require improvement, and puts forward specific "action plans" to effect reforms.
At the heart of the matter is a judicial reform law that is expected to be adopted in the near future. It will replace, current party controls, for example, over the appointment of judges through a new appointive process to be governed by Judicial Selection Commissions made up of professionally competent jurists.
Recent developments in U.S. Government judicial reform assistance include approval in May of $1.75 million Department of Justice Budget (from SEED) for expanded program to strengthen prosecutors' offices and begin groundwork for establishing vetted investigative strike forces. OHR is setting up a Judicial Review Commission. It will build on the work done over the past few years by the UN Mission in monitoring judiciary performance and will make recommendations to the Judicial Selection Commissions. This will be a 3-year project which ensures that the international community monitors and assists the work of the local Judicial Selection Commissions, as the latter build up their skills and competence. The High Representative will be responsible for ensuring that JRC recommendations get translated into actions. The U.S. will commit $2 million (PKO) to the JRC, and we expect other donors to step up as well. This is the first effective step to establish oversight and standards for the judiciary, and to remove political party influence.
Recommendations of the GAO Report
The GAO report made three specific recommendations to combat corruption and crime.
- That we use more conditionality;
- That we do end direct budgetary support; and
- That we reassess our assistance program.
We agree with serious conditionality, although we need to make sure the conditionality supports U.S. objectives. U.S. aid is increasingly focused on supporting minority returns and forcing the pace of economic and judicial structural reforms. The threat of denial of such aid is not an effective lever. The most effective form of conditionality currently available is with the international financial institutions, which continue to provide significant amounts of investment project credits and budget adjustment lending, and we are working closely with the World Bank, IMF, and EBRD to strengthen conditionality. We coordinate closely with the international community and the OHR to apply as much leverage as possible to overcome resistance by the Bosnian leadership to implement the changes necessary to undercut corruption
We also agree with moving away from direct budgetary support. As I noted earlier, we have already terminated such support and do not envision resuming it bilaterally. We continue to believe, however, that such support should be provided by the international financial institutions (IFI) based on strict conditionality. Such IFI adjustment lending provides an important incentive to achieve the range of structural and economic reforms that the international community is seeking. In addition, IFI structural lending reinforces our anti-corruption campaign directly through conditionality and technical assistance that require greater budget transparency, improved expenditure control, and government audit requirements.
On the third recommendation, we do not see the need to reassess our assistance program at this time. We made a fundamental shift in 1998, based on the completion of the most urgent funding needs. We are fully on track with our reform priorities including stemming corruption and crime. We are constantly fine tuning our strategy and tactics based on developments on the ground.
Our strong preference would be that the Bosnians undertake the changes themselves because it is clearly in their long-term, collective self-interest to do so. To promote that kind of thinking, we set a high priority on promotion of independent media, support of open and transparent elections, and encouragement of pro-reform and pro-Dayton leaders and political candidates, regardless of ethnic background or party.
Unfortunately, it is difficult to get the Bosnians to undertake the tough changes. Most of our leverage is through the OHR, which under Dayton has extensive powers, including the imposition of laws and removal of uncooperative or criminal officials. While we are in sync with OHR on objectives, we encourage OHR to take firm action when they encounter serious cases of obstruction.
I have gone into considerable detail today on our efforts to reduce corruption and crime in Bosnia. We have made progress, although admittedly the problem is pervasive and we still have a long way to go.
In closing, Mr. Chairman, the program to reduce corruption and crime in Bosnia is very ambitious and tough to implement. It cuts across all elements of Dayton and we need to be in it for the long term if we expect to help bring democracy and prosperity to Bosnia. Unfortunately, attacking crime and corruption is not a short-term problem. It is a never-ending struggle even in advanced democracies. But in Bosnia, there is some good news as well: the international community is in agreement on these objectives; they are now the highest priority; and we are starting to make some headway on all of them.
[end of document]
