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Europe & Central Asia

Czech Republic risk report

Updated:

Corruption can impede business in a number of sectors in the Czech Republic; corruption risks in the public procurement sector are perceived to be especially high, but many other sectors, including the public administration, carry moderate corruption risks. Patronage and nepotism are considered especially problematic in the country. The Criminal Code criminalizes attempted corruption, extortion, active and passive bribery, bribery of foreign officials and money laundering. The Czech Republic prohibits facilitation payments and any gift given with the intent to illegally influence decision-making may be considered a bribe. Criminal liability for legal entities covers domestic and foreign corporate entities registered in the Czech Republic. Nonetheless, the government does not implement the legal anti-corruption framework effectively. Although the majority of citizens do not encounter petty corruption in their daily lives, bribes or gifts are occasionally needed to speed up public administration processes.

Judicial system Moderate risk

There is a moderate risk of corruption when dealing with the judiciary. Bribes and irregular payments in return for favorable judicial decisions are common (GCR 2015-2016). Corruption within the judiciary is said to be "very sophisticated", making it hard to detect (FitW 2016). The judiciary is constitutionally independent and in practice, the court operates independently, but political influence in high profile cases has occasionally been a problem (NiT 2017; BTI 2016). There are concerns about career advancement of judges happening in a non-transparent manner (GRECO 2016). Approximately two out of five companies rate the independence of judges as fairly bad or very bad (JS 2017). Companies are broadly dissatisfied with the efficiency of the legal framework in relation to settling disputes and challenging regulations (GCR 2017-2018). Companies should be aware that decisions may vary from court to court (ICS 2017). A new Civil Code was introduced alongside the existing Penal Code without a procedural law explaining how the two laws should be applied, leading to problems in the application of the law (ICS 2017). Court proceedings move slowly and many judges lack familiarity with commercial and intellectual property cases (ICS 2017).

Enforcing a contract is significantly more costly and slightly more time-consuming in the Czech Republic compared to the OECD high-income average (DB 2018). The Czech Republic is a state party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and it is also a member of the International Centre for the Settlement of Investment Disputes (ICSID).

Police Moderate risk

There is a moderate risk of corruption when dealing with the Czech police. Businesses have sufficient trust in the reliability of the police services (GCR 2017-2018). Nevertheless, more than half of surveyed businesses pay for security (ES 2013). More than half of citizens perceive the police as corrupt (European Commission, Feb. 2014). Less than one in ten report to have paid a bribe to traffic officers (GCB 2016). Corruption among the security forces is a problem; in 2015, the police investigated 174 cases of corruption among its own forces (HRR 2016).

Public services High risk

The Czech public administration carries a moderate to high risk of corruption. Bribes and irregular payments when dealing with public services sometimes occur (GCR 2015-2016); one in ten companies report expecting to give gifts to "get things done" (ES 2013). More than two-thirds of companies perceive nepotism and patronage to be a problem (European Commission, Feb. 2014), with a significant majority believing that bribery and the use of connections are the easiest way to obtain a public service (European Commission, Feb. 2014). Almost two in every ten surveyed households perceive local public officials to be corrupt and less than one in ten report to have paid a bribe to obtain official documents (GCB 2016). Inefficient government bureaucracy is cited as the second most problematic factor for doing business in the Czech Republic (GCR 2017-2018). Businesses also cite inconsistent competition policies among the deterrents to investment (ICS 2017).

Starting a business in the Czech Republic takes almost twice as many steps compared to the OECD high-income average (DB 2018). Similarly, obtaining a construction permit also takes nearly twice as many steps and a significantly longer time compared to the average among OECD high-income countries (DB 2018).

Land administration Low risk

The land and construction sector poses a moderate to low corruption risk for businesses operating in the Czech Republic. Private property rights are generally well-defined and respected by the government (BTI 2016). Companies report moderate confidence in the government's ability to protect property rights (GCR 2017-2018). Only a small percentage of companies expect to give gifts in order to obtain a construction permit (ES 2013). Companies should note that the process of tracing the history of property and land acquisition can be complex and time-consuming (ICS 2017). Expropriation is only possible when done for public purposes and in a non-discriminatory manner in compliance with international law (ICS 2017). The new Civil Code has clarified the treatment of property rights and what constitutes 'public purposes' in expropriation cases (BTI 2016).

Registering a property takes slightly longer than the OECD high-income average (DB 2018).

Tax administration Moderate risk

The tax administration poses a moderate risk of corruption. Businesses report that irregular payments and bribes when making tax payments are uncommon (GCR 2015-2016); virtually no companies indicate they give gifts when making tax payments (ES 2013). As revealed by statistics from the Supreme Public Prosecutor, tax fraud is among the most occurring financial crimes (ICS 2017). A third of businesses indicate that they perceive tax fraud to be common (EU Barometer 2014). A number of initiatives have led to increased capabilities in the tax administration for detecting tax fraud, including the ability to detect foreign bribery cases (OECD 2017 Phase 4 Report).

Companies spend significantly more time on filing taxes each year than in other OECD high-income countries (DB 2018).

Customs administration Low risk

There is a moderate to low risk of corruption when dealing with the Czech customs administration. Businesses report that irregular payments and bribes are uncommon in customs procedures (GETR 2016). Fewer than one in ten businesses report expecting to give gifts when obtaining an import license (ES 2013). Businesses are satisfied with the efficiency and time-predictability of the clearance process (GETR 2016). Burdensome import procedures and tariffs are cited as among the most problematic factors for importing (GETR 2016).

The average time and cost required to deal with exports and imports are far below OECD high-income averages (DB 2018).

Public procurement Very high risk

There is a high risk of corruption in the Czech Republic's public procurement sector. Over two-thirds of businesses consider corruption to be widespread in national and local public procurement (European Commission 2014). The energy, rail, forestry and postal services are particularly susceptible to undue influence and conflicts of interest (EUACR 2014). Irregular payments and bribes in the process of awarding public contracts and licenses are perceived to be very common (GCR 2015-2016). Companies report high levels of favoritism in decisions of procurement officials and frequent diversion of public funds (GCR 2017-2018). Among the main corruption risks are customized criteria for certain bidders, closing a deal on a contract before the specifications for a call for tender have been identified, and abuse of emergency grounds to justify the use of non-competitive procedures (European Commission, Feb. 2014). In 2014, a fifth of contracts were granted without a call for tender and another fifth were awarded in tenders with only a single bidder (OECD 2016). According to a recent analysis carried out by the NGO zIndex, sponsors of political parties received contracts worth USD 19.5 billion, and companies owned by political donors acquired 40% to 60% more public contracts than companies owned by non-donors (zIndex 2015). Companies are generally able to compete on the same terms as state-owned enterprises (SOEs), but there are frequent accusations that large domestic firms (both private firms and SOEs) are able to use their political clout to gain unfair advantages (ICS 2017). Public Procurement is primarily regulated by Act. No. 134/2016. Tenders are required for acquiring services and supplies exceeding CZK 2 million and construction work exceeding CZK 6 million (ICS 2017).

In one corruption case, an aide to former Prime Minister Mirek Topolanek had been charged for demanding a multi-million dollar bribe from a foreign company in return for a government defense procurement contract (Reuters, Feb. 2016). After a lengthy trial, including a conviction which was overturned, but ultimately reinstated by the country's Supreme Court, the aide was handed a five-year jail sentence (Radio Praha, May. 2017).

Legislation

The Criminal Code criminalizes attempted corruption, extortion, active and passive bribery, bribery of foreign officials and money laundering. Money laundering is also regulated under Act No. 253/2008 Coll. There is no exception for facilitation payments under Czech law (CMS 2016). There is no specific threshold for hospitality expenses, but any gift given with the intent to illegally influence decision-making can be considered a bribe (GCN 2016). For officials, penalties for bribery and abuse of power can be up to 12 years in prison, forfeiture of property, monetary penalties, and a number of other measures (CMS 2016). Anti-corruption laws are not always effectively implemented, and government officials often engage in corruption with impunity (HRR 2016; ICS 2017). The OECD has noted that there is an absence of prosecutions for foreign bribery, despite the high risk of bribery in sectors such as export of machinery and defense materials (OECD 2017 Phase 4 Report). Private sector bribery is criminalized (CMS 2016). Companies and high management can be held liable for corrupt acts by their employees, provided the company benefited from the act (CMS 2016). Penalties for companies include fines, forfeiture of property, disqualification from participating in public tenders and receiving subsidies (CMS 2016). Companies can be exonerated from criminal liability if they can prove they "have made every effort that may be reasonably expected to prevent the commission of a criminal offense" (Lexology, Feb. 2017). In February 2017, a company was exonerated from charges of illegal conduct in public procurement because it has implemented an ethics code (Lexology, Feb. 2017). Legislators, members of the cabinet, and public officials are required by the Conflict of Interests Act 2006 to annually declare their assets. Asset information can be viewed by sending a written request, but the provided information often lacks sufficient detail. A conflict-of-interest law, passed in 2017, limits the business activities of government ministers; its effects are unclear as of the time of review (NiT 2017). The Law on Civil Service prohibits political interference in the public administration and operations of state-owned enterprises (ICS 2017). The Contract Register Act requires all contracts related to the disbursement of public resources and property, as well as some private law contracts when certain public bodies are a party to a contract exceeding CZK 50,000 in value (Lexology, Jul. 2016). There is no comprehensive whistleblower protection legislation and whistleblower protection is inadequate (ICS 2017; Lexology, Jan. 2017).

The Czech Republic has signed and ratified the United Nations Convention against Corruption (UNCAC) as well as the OECD Anti-Bribery Convention.

Civil society

Freedoms of speech and of the press are guaranteed by the Constitution of the Czech Republic and are respected by the government (HRR 2016). Politicians sometimes use hostile rhetoric against media outlets (FotP 2016). There are concerns about ownership concentration among a small group of wealthy businessmen (FotP 2016). A conflict-of-interest law passed in 2017 includes restrictions on media ownership among members of the government (NiT 2017). Freedom of information is guaranteed under the law (FotP 2016). NGOs have reported difficulties and reluctance among officials to release information relating to the salaries of public officials, public tenders, and other uses of public finances (HRR 2016). The media environment is considered 'free' (FotP 2017).

Freedoms of assembly and of association are protected by the Constitution and are also respected in practice (HRR 2016). Civil society is well developed and varied with many forms of civil society organizations (BTI 2016). National, regional and local authorities reportedly cooperate with civil society actors (BTI 2016). The Czech non-governmental sector suffers from a lack of funding and is largely dependent on public funding (NiT 2017). Implementation of programs that would draw on EU structural funds has been delayed (NiT 2017). With the support of national businesses and international donors, more than 20 NGOs launched an anti-corruption campaign named the "Reconstruction of the State" (BTI 2016).

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