Bulgaria Analytica: Grand Corruption and the Captured State Bulgaria facing key existential choice

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Bulgaria's ruling elite demands from business to be either corrupted or else face all the mobilized power of the state machine”

Excerpt from an interview of former CCB majority owner Tzvetan Vassilev

Grand corruption is a key pillar of the governance model in Bulgaria over the last 25 years, lubricating the mechanisms of distribution of power and money, as well as defining winners and losers in the course of history. It is the elephant in the room we failed to notice until we run out of breathing space. 

The magnitude of its impact is not measured only in cash – lost or missed – such as the 19 billion euros, that according to Rand Europe, have been inflicted as damage to the GDP of Bulgaria on a annual basis by corruption and organized crime – which are interrelated and interdependent. Nor by the “honor” of being firmly in the lead on corruption levels within the EU, when measured by the corruption index of Transparency International in a report that alleges that, instead of resolving the issue, “the country is heading into the opposite direction”, i.e. corruption is on the rise.

Even less so, when the benchmark is an estimated $25 billion lost over the last 10 years, according to financial transparency non-governmental organization Global Financial Integrity. Or different data in a dozen more research papers, which even in the most lenient of assumptions, refer to a pending tsunami that will further devastate the prospects of the country to forever leave the mire of crushed hopes and failed fortunes.

The aggregate loss to society should be calculated in lost historic time and personal perspectives, which force a growing number of Bulgarians into emigration and internal immigration. 

There is no shortage of institutions or bodies that are meant to fight corruption at all levels. Even less shortage is felt in “program declarations” and “radical” intentions, though when push comes to shove, nothing materializes. Seemingly ambitious draft laws never make it to the State Gazette and rarely generate any action. 

The non-government sector continues to generate reports and research papers, one after the other, as well as recommendations, which are mostly timely and absolutely spot on, but there is hardly any motion, as the state capture ultimately translates into a capture of the NGO sector that is more and more perceived to produce toothless talk. 

Analyses of the problem are in abundance, grants and funds are “absorbed”, but there is little if any change for the better. Not least of all because the efforts of the NGOs usually end with the publication, instead of commencing with it. 

The last case in mind was the report of the Center of the Study of Democracy, bearing a rather shocking title “State Capture Unplugged”. This is the 18th annual report focusing on monitoring the evolution and the state of corruption in the country, which is considered on two planes – political and administrative. I trust a better split will be to consider a grand and mass level of corruption as a more relevant mark. 

An important finding in the report is that public institutions have been captured by organized political and business groups – namely ‘the practice of a number of highly influential (including business) figures who secure preferential treatment from the state through complex corruption schemes and other violations of the law. They achieve this through affecting the way state institutions function and adopt policies with the aim of satisfying their private interest at the expense of social well being”. 

Such an estimate does not focus still on the issue at a ‘grand’ level, i.e. the political class and the ruling elite, who have the resources to make decisions, not only in regard to distributing public funds, but to protect “the back” of the grand corruptionists against acts of control by the system and institutional mechanisms.

When I asked some colleagues, who took part in the report of the CSD, why they keep avoiding the use of the word grand corruption, they came back with a simple answer: doing so would have compromised their chances to communicate with the institutions in the report. 

Seems they had good reason, as the Council of Ministers, shortly after the presentation, dedicated one of its sessions to the report and its recommendation, with the ritual promise of launching yet again a final battle against corruption with ever greater fervor, with all ministries implementing their own plans with terms and people in charge. This could be likened to a public ceremony of “sanctifying the flag” of the anti-corrpution campaign, without practical meaning for anyone involved, garnished with success in petty corruption showcases with limited range of impact for the corrupted, the corruptionists and those in observation mode who are supposed to keep the process in check. 

With this PR move, the government wiped out in one go the ‘cleansing’ potential of the CSD report demonstrating in real life how and why the battle against corruption in the country is fought in a manner, that risks no damage to the latter. At the end of the day an X number of actions will be recorded with Y cases sanctioned (such as the one against the Mayor of Perushitza), while the core of the evil will be left unharmed through a mix of silence, play with theme swaps and generally more of the same – lack of policies and bad political and governance practices, but above all, absence of genuine action. 

A key to the main part of the country’s existential problems deal with the phenomena of grand corruption and state capture. Failure to address them at the highest level of governance while stressing the mass corruption preeminence is like dealing with the drug issue at the consumers level, ignoring core sources and supply chain actors.

The grand corruptionists wilfully close their eyes to mass corruption practices, as they perceive them as a social safety valve letting the steam out, invoking a spirit of empathy, that rarely translates into protests or opposition acts. 

While grand corruptionists work in the millions and billions, their mass brethren labor hard at the level of the thousands. 

The main characteristics of the grand corruption, that directly contributes and reproduces itself into the captured state, is that it blocks the key mechanisms for control and governance in the state, as those in charge, instead of guarding the community, initiate and implement corrupt schemes on a mass scale. These later on define the course and the speed of economic, social and political development. As Tzvetan Vassilev, the self-exiled former CEO of CCB denotes: the political elite demands that business be corrupted or else do battle with the empowered – the National Revenue Agency, the Prosecutor’s office, the regulators, etc. 

While the situation persists as described above, no significant strategic problem in our development, even those deemed hypercritical as the demographic issue, could hope to be resolved. No reforms or plans for overtaking competitor countries at central or regional level can be conceived or implemented — unless and until the Gordian knot of grand corruption, implicating top politicians and leaders in the executive, legislative and judicial branch, is cut. 

If the way out is sought solely within the confines of the paralyzed and captured judicial system, or focuses only on the general prosecutor’s office, we will reach a dead end. Anyone in this seat, provided he has been selected and elected under the current career promotion system, or is subject to control and dependencies, including through the ‘soft’ coordination tools with the executive and legislative branch, or is spared the need for  public control or accountability for what and how he does, or if he does not depend for his personal and professional career development on an effective and corruption-free environment, but rather is creatively incentivized by politicians and businessmen alike, every future general prosecutor will repeat the fate of the current one. 

The grand corruptionist lives and performs the bulk of his activities moving between the white and the grey economy. In most cases offshore accounts and companies are involved, not least of all allowing for a quick and discrete transfer of funds, beyond the reach and control of local institutions and the eye of the Bulgarian public. 

Even when laws are trespassed in daylight, notably by siphoning VAT from the budget, the actors feel perfectly immune. Mr. Peevski’s intentional and willful pursuit, according to Tzvetan Vassilev, who knows him well, is to have his loyal proxies in key places at the top of the prosecutor’s office and the judicial system, as well as the National Revenue Agency, the Customs Agency and most recently the Bulgarian Development Bank. Oligarchs engaged in grand corruption control key appointments in the Ministry of Interior, the National Investigation Service and the customs checkpoints at the border, which monitor the contraband channels for drugs, tobacco products, traffic of stolen cars and illegal human trafficking, including with illegal refugees etc. 

This, too, constitutes grand corruption, as at the top of the pyramid, reside ‘bosses’ key government officials, who turn a blind eye or block effective counter actions. 

A key role in distracting public attention away from the topic of grand corruption is played by the media, which administer in small but regular doses mass anesthetics to the public or simply hide the truth, such as the case of dumped letter of the infamous top CCB banker, that in any self respecting country, would provoke immediate action from the prosecutors or the investigation services.  We are being asked to focus only on household drama, reality shows and en passant on petty corruption, where loss goes into the thousands, in order to shield grand theft that occur in the billions. It is not coincidental, that for its majority part, the Bulgarian media ownership is ’on credit’ that few intend to pay back. One could endlessly argue whether politicians control big business or vice versa. In most instances this is a false or misplaced argument as top Bulgarian politicians can easily outcompete some oligarchs by the amount of assets under their control. The internal symbiosis between the two groups – business and politicians – bears all the hallmarks of an organized crime gang. It is a known fact, that almost all top businessmen in the country consider it mandatory to invest in national and regional politics in order to have access to power. For most of them this a top priority overriding the need to invest in renovation of the technology base, in innovation and breakthrough knowledge achievements or in boosting their competitive edge in regional and global markets. Purchasing politicians who insist on being bought is the trivia of Bulgarian public life. This is the same class, born after the privatization and megalomanic projects, such as the Grand Slam – which proved Grand only on on the scale of instilled corruption and that become increasingly lethal with attempts to keep under total control everything that matters in the state. 

In reality, there is not a single sphere in the economy or in public life, that remains immune to grand corruption, where it does not rule or determine the course. 

In the Center for the Study of Democracy report, which is quoted above, different cases are cited including the monopoly status of the Lukoil group of companies on the fuel market, in which the company is engaged in overt abuse of its dominant position with the tacit backing of the anti-trust commission and a number of consecutive governments, that managed to introduce intentionally complicated procedures, preventing other fuel importers from being competitive on the local market. 

A starker reminder of the state capture potential of the company has been demonstrated in the recent lobbying for purpose legislation that further blocks the chance to import alternative fuels via excise depots through the introduction of new mandatory bank guarantees for all sums potentially due to the budget before fuels are imported. No debate, no protest, with open support and on the initiative of the government. The proclaimed aim is to increase tax collection or preempt illegal imports, but the end and underlying result is a complete ban on competition. 

According to independent experts’ estimates, the annual effect from Lukoil’s abuse with its dominant position and the lack of genuine competitive fuel market is close to 850 million leva. 

When we add to the tally the losses inflicted by the grand corruption in the NPP Belene project, where the proven ‘input’ of top politicians and businessmen, racing to secure their personal gain, while working with impunity, in a network of dependencies with media and other support groups, exceeds 2 billion euros. This provides a catastrophic dimension to the lost fortune and well being of the Bulgarian people for generations to come. 

Without being privy to all details in the arbitration process with ASE, it is worth reminding that there were two main approaches to the dispute. The first, preferred by the Russian company was that this is a pure commercial dispute, where politics do not matter. 

The other line was that the project has never been primarily driven by commercial considerations, but has been overwhelmed by politicians and political considerations. The argument further went that at no time in the due process were the formal executive officers free to judge on purely corporate business grounds. 

This second line is a lot closer to the truth, yet it lacked a key ingredient and proof – the evidence of a concurrent action of the prosecutor in defense of the public interest against the implicated top politicians, both Bulgarian and Russian, that are known to have been putting pressure on the managers at the National Electric Company. 

There is no shortage of proof that the executive officers simply ignored red alerts and basic standards for good corporate governance, as well as the constraints of the law and even common sense, while signing protocols without a valid EPC contract. In the meantime flagrant offenses by the Russian side, preceding and in the course of the deal happening, were left to rest without any attention. 

It is impossible to expect that judges sitting somewhere in Europe would grasp the complexity of a politically induced deal a la Russe in a EU member country and the fact that it is possible that Bulgaria has been literally forced into accepting a project with unforeseen and unmitigable risks, incapable of accommodating public and national interests due to overwhelming interference from Russia or its local proxies. 

The same people, who refuse to name and prosecute the implicated politicians for the decisions leading to the court decision worth 650 million euros, are presently seeking parliament approval for a fresh state credit to NEK for payment to ASE of 400 million euros. One should not be surprised that the public is less than confident that the said sum won’t end up, at least in part, with the same old grand corruptionists who caused the verdict.

The cases of Vivacom or CCB or the Sofia airport, or the banks, which failed to meet the set risk resilience criteria during the recent asset quality review, all imply either evident or more obscure grand corruption lining. It can be taken for granted that the level of FDI in the country is far from the previous peak level, while the engagement of large international companies in local public tenders is almost notional, in spite of the boom in interest in emerging markets. We are asked to believe that we have been throwing good money after bad on the ‘American’ power stations, without acknowledging the underlying Bulgarian trail. The contentiously most popular TV channel, dubbed the “Ämerican”, is totally under the control of the Bulgarian grand corruptioinsts’ web,which is in charge of the advertising market and subsequently the revenues.

There is not a single major deal in the country, as of late, without grand corruption potential or context that the government has failed to preempt.

The captured state and the so far invincible grand corruption fix and make “eternal” the laggard role of Bulgaria in the EU by level of income and well being, which is a recipe for yet another national catastrophe, leading to a nation state failure, following the demographic collapse and almost chronic and irreversible loss of competitiveness versus other countries and people. The country is unable to offer its citizens a credible national perspective in terms of economic growth, population growth, wealth accumulation and, above all, in rendering a more competitive and globally validated model that will keep Bulgarians home.