4. The landscape for combatting corruption and review against the OECD Anti-Corruption and Integrity Guidelines for SOEs
After a brief introduction, this chapter includes a discussion of the overall anti-corruption landscape in Costa Rica. This is followed by a summary review of Costa Rica’s policies and practices compared to the OECD Anti-corruption and Integrity Guidelines in State-owned Enterprises (ACI Guidelines). The ACI Guidelines apply specifically to SOEs and cover the following issues: 1) the integrity of the state; 2) exercise of state ownership for integrity; 3) the promotion of integrity and prevention of corruption at the enterprise level; and 4) accountability of state-owned enterprises and of the state.
Costa Rica’s framework for combatting corruption was initially considered during the accession review process through an assessment of Costa Rica with respect to the recommendations of the G20/OECD Principles, the SOE Guidelines and other relevant OECD work1. This included the development of a general description of the landscape for anti-corruption. Later in the process, in 2019, the OECD Anti-corruption and Integrity Guidelines in State-owned Enterprises (ACI Guidelines) were issued. Given the advanced stage of the accession review process, the review against the ACI Guidelines was based largely on a self-assessment of Costa Rica against its recommendations and some selected interviews but was not exhaustive and did not obtain sufficient information to reach a clear assessment against all detailed recommendations. Nevertheless, sufficient information was available to reach broad conclusions and develop an overall description of compliance with the recommendations made in the four substantive chapters of the ACI Guidelines.
The government of Costa Rica formally applied to the OECD Secretary-General in 2013 to become a full participant in the OECD Working Group on Bribery in International Business Transactions (WGB) and to accede to the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Anti-Bribery Convention). In the context of the WGB’s Accession Review of Costa Rica, the WGB concluded that “Costa Rica is willing and able to pursue corruption cases,” and that “Costa Rica has actively and co-operatively participated in the WGB and other review mechanisms. It has also taken significant steps to prepare for accession to the Anti-Bribery Convention by making amendments to its legislative framework and holding events to raise awareness of foreign bribery, improve enforcement of the offence, and prepare for the WGB monitoring process.” Accordingly, Costa Rica became the 43rd Party to the Anti-Bribery Convention in July 2017.
Costa Rica’s legal framework for anti-bribery and its compliance with the Anti-Bribery Convention was subsequently examined in 2017. This resulted in a set of recommendations made to Costa Rica. In response, the law on the Liability of Legal Entities for Domestic Bribery, Transnational Bribery and other Crimes Law was enacted in June 2019 (Responsabilidad de las Personas Jurídicas sobre Cohechos Domésticos, Soborno Transnacional y otros Delitos). The law aims to fulfil the commitments acquired with the ratification of its adherence to the Anti-bribery Convention and strengthens, among others, the mechanisms to establish the liability of legal persons in cases of transnational bribery.
Costa Rica has laws, regulations and penalties to combat corruption, and has demonstrated some capacity to enforce them despite limited resources. The country scored 56 out of 100 points on Transparency International’s Corruption Perception Index of 2018 and had a rank of 48 out of 180 countries. According to the World Economic Forum Global Competitiveness Report 2018-2019, Costa Rica ranked 44 out of 141 countries on the criterion of incidence of corruption. In the same report, corruption is classified as the seventh out of the 16 most problematic factors in Cost Rica. This represents an improvement from the 2012-2013 report where corruption ranked fourth.
During the initial phase of the accession review, contacts with civil society organisations suggested that while corruption was not generally visible, there were cases of cronyism, nepotism, and abusive related party transactions. Subsequently, the “Cementazo” (Big Cement) scandal emerged in mid-2017. It featured allegations of corruption in the Bank of Costa Rica, abetted by weak governance practices in state-owned banks, and provided a more concrete illustration of the problems alluded to by civil society organisations.
The case exposed both the vulnerability of SOEs to corruption and the importance of strengthening boards and their capacity to oversee the effectiveness of internal controls. The Cementazo case, which garnered widespread publicity, contributed to reinforcing Costa Rica’s commitment to reform SOE boards through an improved appointment system, and the implement of board training and board evaluation programmes.
The Banco de Costa Rica (BCR) scandal came to be known as the “Cementazo” because it revolved around a credit for the importation of cement from China. The Cementazo has been described as a case of influence trafficking wherein executives at BCR provided a credit to Juan Carlos Bolaños (and his company Sinocem), who was associated with various government institutions and political parties.
According to press reports, rules and regulations were changed unduly in order to favour Sinocem’s business. Bolaños defended himself against accusations of misconduct by arguing that his actions were an attempt to break a government-identified duopoly on cement importation held by Holcim and CEMEX. Both Holcim and CEMEX, on the other hand, deny the allegations of market dominance. Ultimately, a network of mainly public banks (BCR, Bancrédito, Banco Popular, and Banco Internacional de Costa Rica) became involved, lending approximately USD 45 million to Bolaños and his company.
The Cementazo is a complex case. It garnered significant public attention precisely because it involved various government institutions. Irrespective of the details of the case, the Cementazo illustrates the problems that often emanate from opaque governance arrangements. It implicates the state as the owner of BCR and the board of directors, and highlights the problems that result from weak systems of control.
The OECD Council adopted the Recommendation of the Council on Guidelines on Anti-Corruption and Integrity in State-Owned Enterprises (ACI Guidelines) in May of 2019. The ACI Guidelines bring together recommendations on anti-corruption and integrity found in a number of existing OECD instruments and provide complementary recommendations specific to SOEs. In its position statement with respect to the ACI Guidelines, Costa Rica reported that its policy framework is not only aligned with the principles and recommendations of the ACI Guidelines, but that it is committed to improving integrity and ethical standards in its SOEs and in the exercise of the public service at large.
The following evaluation of Costa Rica’s compliance with the ACI Guidelines focuses almost exclusively on the legislative and institutional framework. It was not possible to obtain sufficient information to assess the actual policies, systems or procedures in place at the SOE level, or reach conclusions regarding the effectiveness of the legal and institutional framework in preventing corruption and promoting integrity. Such an assessment would have required considerably more time. There are, however, already some indications regarding the practical capacity of SOE boards and executives to implement anti-corruption and integrity policies that can be inferred from the parts of the accession review that assess Costa Rica against the SOE Guidelines.
This assessment has led the Corporate Governance Committee to reach an overall positive assessment of Costa Rica’s legal framework for anti-corruption and integrity in SOEs, as noted in greater detail below. Costa Rica’s position underlines a continuing commitment to preventing corruption and promoting integrity in SOEs. However, similar to its implementation of the SOE Guidelines, Costa Rica should continue to work to strengthen implementation, particularly at the level of SOEs and their boards, to ensure effective oversight of internal controls and corruption risks. This will also require mutually-reinforcing approaches, which emanate not only from the state and SOEs, but from the regulatory, judicial and supreme audit institutions to foster an effective cultural change towards better integrity and anti-corruption practices.
The legal framework for anti-corruption in SOEs
At the level of its overall legal framework, Costa Rica fosters a general environment of transparency and integrity in the public sector. Costa Rica has a legal and regulatory framework fully consistent with the rule of law and SOEs are subject to the general rule of law. Costa Rica also has a well-developed judicial system that permits the enforcement of rights. The following are the main legal provisions that establish the framework for corruption and integrity in SOEs:
The Constitution establishes specific provisions related to integrity and anti-corruption such as: the prohibition for legislators to contract with the state or receive concessions of public assets and the right of the Comptroller General to oversee the use of public funds.
Since 2004, regulations were added outlining the duties and obligations of public officers in matters of anti-corruption and integrity. The Law against Corruption and Illicit Enrichment in Public Service and Executive Decree 32333-MP-J of 2005 define the duty of integrity. They also introduce rules regarding conflicts of interest and abuse of public office.
In accordance with the Law against Corruption and Illicit Enrichment, ethics principles are legally binding for all public officers, including officers and individuals working for public enterprises. They also apply to proxies, administrators, managers and legal representatives of legal entities that safeguard, administer or exploit funds, goods or services property of the Administration.
Regarding integrity of the state, Costa Rica’s legal and regulatory framework applies high standards of conduct to the state and encourages a culture of integrity. The Political Constitution establishes the obligation for public servants to comply with the duties imposed by law, as well as the prohibition to assume any faculties that are not explicitly granted by law.
Costa Rica’s legislation defines “corruption” in Executive Decree No. 32333 as the use of public functions and attributions to obtain or concede benefits, in violation of legal provisions and existing regulation. More specifically, it is the undue exercise of power and public resources for personal or political gain for oneself or on behalf of a third party. The definition is further complemented by other decrees that include list of acts of corruption, as well as Law 7670 of 1997, which ratifies the American Convention against Corruption.
Under the General Law of the Public Administration of 1978 and administrative case law, public officials including SOEs board members are subject to the legal and regulatory provisions of Public Law. In matters of criminal responsibility, they are considered legitimate public agents.
The General Guidelines about Ethic Principles and Statements to be Observed by Heads, Subordinate Holders, Officials of the Comptroller General of the Republic, Internal Audits and Public Officials in General issued by the Comptroller General, establishes that no public servant shall participate, directly or indirectly, in financial transactions taking advantage of confidential information, thus mitigating the risk of insider trading.
The Review of the Functions of Management Bodies and Strengthening of their Strategic Role in State-Owned Enterprises and Autonomous Institutions (referred to in this review as the Strategic SOE Board Directive) establishes that one of the responsibilities of the board is to ensure the existence and integrity of whistleblowing procedures, as well as the protection of whistleblowers. Further, Decree 32333 safeguards the confidentiality of whistleblowers after launching an investigation or legal procedure in observance with Laws 8422 and 8292.
The institutional framework for anti-corruption in SOEs
The following are the main institutional structures that create the framework for implementing corruption and integrity measures in SOEs:
Public Ethics Office of the Attorney General of the Republic (PEP) is a unit created within the Office of the Attorney General (PGR), which acts as the main body responsible for anti-corruption and prosecution.
The Comptroller General of the Republic has broad operational and administrative independence in the performance of its duties including auditing systems of control and detecting potential malfeasance. The Comptroller General has traditionally been active in conducting examinations but also in developing guidelines for internal control of SOEs and the oversight of procurement procedures.
The National Commission for the Recovery of Values (CNRV) is responsible for promoting and strengthening ethics and integrity within the public sector, private organisations and civil society.
The Office of the Ombudsman participates in a wide range of anti-corruption activities, including the Interinstitutional Transparency Network and offers training and workshops on corruption prevention, as well as training for the general public on how to file complaints in the case of corruption.
The Deputy Prosecutor of Probity Transparency and Anti-Corruption (FATPA) is a specialised unit within the Office of the Public Prosecutor of the Judiciary, which prosecutes ethical violations and integrity-related offences.
The General Directorate of the Civil Service (DGSC) is the central co-ordinating agency for public employment and human resources management. The DGSC sets policies for 47 entities under the civil service regime including directives related to probity and integrity. Since 2012, the PEP, the Comptroller General, FATPA, and the Costa Rican Institute on Drugs have implemented a joint commission that works as a co-ordination mechanism in the fight against corruption and promotes inter-institutional programmes.
Review against the main chapters of the ACI Guidelines
The main chapters of the ACI Guidelines cover: Chapter II: Integrity of the state; Chapter III: Exercise of state ownership for integrity; Chapter IV: Promotion of integrity and prevention of corruption at the enterprise level; and Chapter V: Accountability of state-owned enterprises and of the state.
Integrity of the state (Chapter II)
Chapter II recommends for SOEs to be autonomous legal entities overseen by governments and high-level public officials and subject to the general rule of law. Adherents should establish and adhere to good practices and high standards of behaviour, on which integrity in SOEs is contingent. The ACI Guidelines seek to: 1) establish ownership arrangements that are conducive to integrity; and 2) apply high standards of conduct to the state
Costa Rica is trying to encourage a culture of transparency in government and SOE oversight through a variety of initiatives and laws. The PEP, the Comptroller General, FATPA, and the Costa Rican Institute on Drugs have implemented a joint commission that works as a co-ordination mechanism in the fight against corruption. The Political Constitution establishes that “all public servants must be elected using criteria of proven suitability”. The law against Corruption and Illicit Enrichment in Public Service seeks to address cases of conflict of interest and abuse of public office. The General Guidelines about Ethics Principles and Statements establish that no public servant shall participate, directly or indirectly, in financial transactions taking advantage of confidential information that might give them a privileged position. The Law on Anti-Corruption, incorporates provisions to protect any person who reports irregular or illegal situations in public institutions. According to The General Law of the Public Administration, all public officials are required to observe principles of objectivity, impartiality, neutrality and independence requirements in case of conflict of interest. Furthermore, the Electoral Code prohibits the use of public funds to induce voters to choose or abstain from choosing a specific candidate. This prohibition extends to SOEs.
Some possible gaps from the ACI Guidelines are that the Presidential Advisory Unit, as the government’s ownership entity, does not have a direct accountability to or a formal reporting relationship with the Legislative Assembly. In addition, disclosure of the costs and revenue structures of SOEs that combine economic activities with public policy objectives to allow for an attribution to main activity areas is not currently being done. The Protocol of Understanding (ownership policy) establishes a long-term goal of better quantifying and reporting on SOE activities. Finally, the Presidential Advisory Unit, being newly established, is not yet equipped to regularly monitor, review and assess SOE performance against standards related to anti-corruption and integrity.
Exercise of state ownership for integrity (Chapter III)
Chapter III recommends that adherents act as active and engaged owners, holding SOEs to high standards of performance and integrity, while also refraining from unduly intervening in the operations of SOEs or directly controlling their management. Ownership entities should have the legal backing, the capacity and the information necessary to hold SOEs to high standards of performance and integrity. Adherents should make their expectations regarding anti-corruption and integrity clear. The ACI Guidelines aim to: 1) ensure clarity in the legal and regulatory framework and in the state’s expectations for anti-corruption and integrity; and 2) act as an active and informed owner with regard to anti-corruption and integrity in SOEs.
The General Law of the Public Administration and administrative case law state that public officials, including board members of SOEs, are subject to the legal and regulatory provisions of public law, and are subject to criminal responsibility. The legislation that requires the presentation of financial statements according to IFRS is now in place for both financial and non-financial SOEs and the Ministry of Finance, through the National Accounting Office, and CONASSIF and SUGEF continue efforts to close gaps. The capacity for monitoring the SOEs and engaging with boards on corruption risk exists in principle. In practice, the Presidential Advisory Unit has not engaged with boards on the issue of anti-corruption, given the newness of the unit and other tasks that have engaged it since its establishment. SOEs are subject to a variety of relevant disclosure obligations.
Some ACI Guidelines recommendations from this chapter merit further attention. Obtaining an accurate compilation of financial support provided to Costa Rican SOEs is challenging. In addition, there is no document, which presents the state’s overall risk exposure to SOEs. Such a document would, presumably, detail potential budgetary and reputational impacts under a variety of circumstances and would propose contingences. Nor is there any document that assesses the risk of corruption amongst SOEs.
Promotion of integrity and prevention of corruption at the enterprise level (Chapter IV)
Chapter IV recommends that adherents ensure that their ownership policy fully reflects that a cornerstone of promoting integrity and preventing corruption in and concerning SOEs is effective company internal controls, ethics and compliance measures that prevent, detect and mitigate corruption-related risks, and enforce rules. Adherents should ensure that SOEs are overseen by effective and competent boards of directors that are empowered to oversee company management and to act autonomously from the state as a whole. The ACI Guidelines aim to: 1) encourage integrated risk management systems in SOEs; 2) promote internal controls, ethics and compliance measures in SOEs; and 3) safeguard the autonomy of SOE decision-making bodies.
The law specifies the duty of boards to ensure the adequate and effective function of internal controls and their oversight. On the institutional side, the Comptroller General and MIDEPLAN have developed a robust framework of guidelines and regulations regarding the internal control of SOEs. Furthermore, the ownership Protocol suggests that boards adopt, supervise and disseminate internal control methods, ethical codes and compliance programmes, including those that contribute to the prevention of fraud and corruption. Costa Rica has also responded to the recommendations of the WPSOPP to remove ministers on SOE boards through legal reforms. SOE boards have considerable autonomy and are composed exclusively of non-executive members with the exception of some enterprises that permit the chair to simultaneously exercise the role of the CEO. In most cases board members are independent from the state and SOE officials need to make full declarations of any potential conflict of interest.
While Costa Rica has established legal requirements or policy positions to address most of the recommendations in this chapter, in some cases, insufficient information was available to assess compliance with the ACI Guidelines, which call for a detailed examination of SOE risk management systems. Such an assessment would require the involvement of risk experts. Consequently, it is difficult to report the degree to which SOEs comply. The Costa Rican government did report, however, that risk analysis of SOEs is conducted with the support of a computer application, the Specific System of Institutional Risk Assessment (SEVRI). Such assessments must be conducted as part of the Institutional Strategic plan of all public institutions and must be approved by the board.
In general, SOE statutes, law and SOE culture suggest that the duty of board members is mainly to the state and to the achievement of the state’s policy goals. However, the government’s Protocol of Understanding does indicate as an overall policy objective a board member obligation to ensure the sustainability of the SOE. Insufficient information was available to assess Costa Rica’s compliance with the recommendation to boards to exercise oversight of SOE hiring practices. Some anecdotal evidence suggests that it is common for individuals to freely move between the public and the private sectors i.e. there may be a “revolving door”, which could potentially create conflicts of interest.
Accountability of SOEs and of the state (Chapter V)
Chapter V recommends that systems exist to ensure the detection of corruption, as well as investigation and enforcement, and that key processes are entrusted to institutions that are insulated from influence or suppression of said processes or dissemination of public information regarding their conduct. Strong, transparent and independent external auditing procedures are means of ensuring financial probity, informing shareholders about overall company performance and engaging stakeholders. The ACI Guidelines aim to: 1) establish accountability and review mechanisms for SOEs; 2) take action and respect due process for investigations and prosecutions; and 3) invite the inputs of civil society, the public and media and the business community.
The Legislative Assembly has broad investigative powers and could call SOEs to testify or other bodies such as the Comptroller General to report on SOE activities. SOEs generally provide reports on performance as well as audited financial statements. (Annual reports, financial reporting standards, audit, aggregate reporting on SOEs are all discussed in the part of the review covering the OECD Guidelines above.) Costa Rica has mechanisms to detect and investigate any action contrary to public ethics. At the administrative level, the investigation of irregularities is carried out by the Office of the Attorney of Public Ethics, the Comptroller General of the Republic, as well as internal auditors who all enjoy independence in the exercise of their functions. Law 9699 of 2019 created criminal liability for legal persons for foreign bribery. The Strategic SOE Board Directive establishes that one of the responsibilities of the board is to ensure the existence and integrity of whistleblowing procedures, as well as protection and confidentiality measures for the claimant. Overall, Costa Rica’s enforcement record has demonstrated its commitment to pursuing corruption allegations, including against political figures, representatives of SOEs, and active bribers. Finally, various initiatives have been taken by government during the period of the accession review process to promote improved public knowledge and transparency about SOEs including the fourth Open Government National Action Plan for 2019-2021, which contemplates broad stakeholder involvement.
Compliance with more detailed recommendations related to the effectiveness of enforcement mechanisms in practice was not assessed, such as with respect to the degree to which stakeholders and other interested parties, including creditors and competitors, have access to efficient redress. Additionally, this review did not identify any information that might suggest that representatives of the state or SOEs repress or otherwise restrict civil liberties, including liberties to criticise or investigate, of civil society organisations, trade unions, private sector representatives, the public or the media.
References
Republic of Costa Rica (2019), Aggregate Report on SOEs 2019, https://www.hacienda.go.cr/docs/5dd69dd20f54e_Reporte%20agregado%20empresas%20del%20Estado%202019%20v8Nov2019.pdf
OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris, https://doi.org/10.1787/9789264236882-en.
OECD (2015), OECD Guidelines on Corporate Governance of State-Owned Enterprises, 2015 Edition, OECD Publishing, Paris, https://doi.org/10.1787/9789264244160-en.
OECD (2019), Guidelines on Anti-corruption and Integrity in State-Owned
Enterprises, www.oecd.org/corporate/Anti-Corruption-Integrity-Guidelines-for-SOEs.htm
Note
← 1. The assessment against the ACI Guidelines draws mainly upon the following sources: the WGB Accession Report (2016) and WGB Phase 1 Report (2017); the Public Governance Accession Review (2017); Costa Rica’s statement of its position against the ACI Guidelines; and information obtained during the August 2019 Secretariat fact-finding mission.
