Lithuania

Lithuania Corruption Report

Snapshot

Lithuania_249x120.jpgCorruption is not a major impediment to business in Lithuania, but small and medium enterprises (SMEs) can be vulnerable to bribery and extortion, largely due to the pervasiveness of red tape and inefficient government bureaucracy. Public procurement and public services are the sectors most affected by corruption, and the country’s shadow economy undermines fair competition. The Criminal Code criminalises corruption in the public and private sectors, covering abuse of officemoney laundering, active and passive bribery and the bribery of international civil servants and foreign government officials, but anti-corruption laws are not effectively enforced. High-level corruption is a problem as officials act with impunity. Companies indicate that facilitation payments and bribes are sometimes requested when in contact with some public officials or to obtain favourable judicial decisions. Gifts are regulated under Lithuanian law. 

December 2015
GAN Integrity

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Judicial System

The judiciary does not carry a significant corruption risk for companies operating in Lithuania, and a very small percentage of companies identify the courts as being a constraint to doing business (ES 2013). The institution is independent but perceived to be slow and opaque, and businesses rate the institution’s efficiency to settle disputes and to challenge the legality of government actions and/or regulations as quite weak (GCR 2015-2016). The public perceives the institution as the second most corrupt sector in Lithuania (GCB 2013). Almost half of respondents believe abuse and bribery are widespread among officials within the judiciary (European Commission, Feb. 2014).

Businesses can settle commercial disputes either through local courts or the Commercial Court of Arbitration. International arbitration and foreign court judgements are recognised and can be enforced. No major disputes between foreign investors and the government have been noted since Lithuania's independence in 1991. Lithuania is a party to the International Centre for Settlement of Investment Disputes (ICSID), the New York Convention 1958 (UNCITRAL) and the World Bank's Multilateral Investment Guarantee Agency (MIGA).

Police

Companies do not contend with a high corruption risk when dealing with the security sector in Lithuania. The government has effective mechanisms in place to punish corruption (HRR 2014), and companies find the Lithuanian police force to be efficient in protecting them from crime and enforcing the rule of law (GCR 2015-2016). Nonetheless, more than half of companies pay for security in Lithuania (ES 2013), and more than two-thirds of citizens believe abuse and bribery are widespread among the police officials (European Commission, Feb. 2014). 

Public Services

The public services sector in Lithuania is perceived to be corrupt. Small and medium businesses have in particular reported the need to make facilitation payments in order to obtain permits on time (ICS 2015). A significant majority of businesses report that bribery and the use of connections represent the easiest way to obtain certain public services (European Commission, Feb. 2014). Companies rank inefficient government bureaucracy as the most problematic factor to doing business in Lithuania (GCR 2015-2016) and complain that the interpretation of regulations is unclear and that the application is inconsistent (ICS 2015). The time and cost required to start a business is lower on average compared to other OECD countries (DB 2016). The government has introduced information technology to promote more efficient administrative procedures (ICS 2015). 

Land Administration

Corruption represents a modest risk for companies dealing with Lithuania's land administration. Almost one-third of surveyed businesses expected to give gifts in return for a construction permit (ES 2013), and more than a third of Lithuanians feel that abuse and bribery are widespread among officials issuing building permits (European Commission, Feb. 2014). Property rights are well defined, and companies report that property rights are well protected (GCR 2015-2016). Foreign investors are protected from expropriation and nationalisation. In the case of nationalisation, businesses have the right to compensation, which is equivalent to the market value (ICS 2015). The time and cost required to register property is much lower than the regional and the OECD average (DB 2016), perhaps due to recent legal provisions that streamlined land-use planning, saving investors time and money (ICS 2015).

Tax Administration

Lithuania's tax administration does not carry a high corruption risk for businesses, despite it suffering from certain corruption-related problems. Only one in ten companies report the need to offer gifts when meeting with tax officials, while an even smaller percentage report tax fraud as being common (ES 2013European Commission, Feb. 2014). Excise goods smuggling, tax evasion and hiding income are widespread and are usually closely connected to corrupt activities (Vakarų ekspresas, May 2013). Companies identify tax rates and regulations as among the most problematic factors to doing business in Lithuania, yet dealing with tax payments is less time consuming than the regional and other OECD countries' average (GCR 2015-2016; DB 2016). The lack of open and transparent information in the sector is a problem, and businesspeople occasionally face problems from public officials who treat small businesses as potential tax evaders (ICS 2015ICS 2014).

Customs Administration

Lithuania's customs administration carries a very low corruption risk for businesses. Companies rate the transparency of the border administration, in relation to irregular payments in export and imports, as high (GETR 2014), and almost none report being expected to give gifts in return for an import license (ES 2013). The time and cost required to trade across Lithuania's borders is shorter and lower than the regional and OECD averages, constituting a competitive advantage for the country (DB 2016).

Public Procurement

Public procurement carries a high corruption risk for business operating in Lithuania (NiT 2015). Businesses have complained that the procurement process sometimes involves corruption and that there is a lack of transparent and open information on procurement processes (ICS 2015). Companies believe public funds are often diverted to preferred companies, individuals or groups due to corruption, and businesses indicate government officials frequently favour well-connected companies and individuals in the process of awarding contracts (GCR 2015-2016). Some of the corruption risks include a broad definition of confidentiality in procurement documentation and the absence of a guide on red-flagging mechanisms (EUACR, Feb. 2014). Tailor-made specifications for particular companies and collusive bidding are also ranked among the most prevalent corruption risks in procurement in Lithuania (European Commission, Feb. 2014). The government has effectively implemented e-procurement, providing businesses with online access to centralised data on public procurement. Almost 87 precent of public bids were conducted electronically in 2014 (ICS 2015), but the sector suffers from a lack of effective tools to detect corruption at the local government level. The penalties imposed are disproportionately low compared to the value of the public contract in question and directors of public institutions are not held personally liable for violations (NiT 2015).

Two cases of procurement corruption within the Ministry of Interior have recently been referred to Lithuania’s Prosecutor General’s Office. The cases are connected to two tenders on IT services worth EUR 69,000 and EUR 141,500 respectively. The unrealistic implementation and delivery deadlines triggered the corruption investigation (Delfi, Mar. 2015). The tenders were closed under then Interior Minister Dailis Alfonso Barakausas, who had resigned after investigations were launched into the allegations (NiT 2015). Companies are recommended to use a specialised public procurement due diligence tool to mitigate public procurement corruption risks in Lithuania.

Natural Resources

The most famous corruption case connected with the Lithuanian natural resources sector is the 'fish fraud scandal'. Seven fish-canning and processing companies applied for and received EU funds, which were later illegally syphoned with the support of Ministry of Agriculture officials. The estimated loss was USD 8.8 million (Vlasti, 2012). To curb corruption, the Ministry of Environment established a direct anti-corruption hotline (Balsas, Oct. 2013). No major incidents have been reported since its establishment.

Legislation

Lithuania's anti-corruption legislation is well developed. The Criminal Code criminalises corruption in the public and private sectors, abuse of officemoney laundering (also covered by the 1997 Act on Prevention of Money Laundering), active and passive bribery and trading in influence. It also provides for criminal liability for bribery of international civil servants and foreign government officials. A bribe, according to Lithuanian law, covers material and immaterial benefits, as well as benefits offered through a third party. The government extended the statutes of limitation for corruption offences (EUACR 2014). The Law on the Adjustment of Public and Private Interests in the Civil Service regulates conflicts of interest. Other anti-corruption laws include the Prevention of Corruption Law and the Law on the Special Investigation Service (EACSiL). Giving and receiving gifts is criminalised in Lithuania, and public officials are not allowed to accept protocol gifts that exceed EUR 29. Gifts that do not give rise to conflicts of interest yet exceed the amount of EUR 145 have to be reported (GRECO, Feb. 2015). The anti-corruption legislation also contains provisions for disclosure of assets and income. Despite the comprehensive legal framework, the government has not been applying anti-corruption laws effectively and reportedly, several public officials have engaged in corruption with impunity (HRR 2014). Access to public information in Lithuania is regulated by the Law on the Provision of Information to the Public and the Act on Right of Access to Information from State and Local Authority Bodies, and the government generally provides access to the requested information (FotP 2015).

Lithuania has ratified the United Nations Convention against Corruption (UNCAC), the Council of Europe Civil Law Convention on Corruption, the Criminal Law Convention on Corruption, the OECD convention, and the Additional Protocol to the Criminal Law Convention on Corruption.

Civil Society

Freedoms of speech and of the press are guaranteed by Lithuania's constitution, and these rights are respected in practice (HRR 2014). The media can express different perspectives without restriction, yet libel and defamation are considered crimes (FotP 2015). Media outlets are mainly privately owned, but opaque ownership affects their independence, accountability and reliability (FotP 2015). WikiLeaks released information through the Telegraph on the extent of corruption in media advertising in Lithuania, noting that certain politicians were threatened with negative coverage by large newspapers, such as Respublika and Lietuvos Ryta, to obtain advertising revenue (FotP 2015). Politicians can get positive press coverage in return for money (FotP 2015). There are no restrictions on internet sites, and the press environment is considered 'free' (FotP 2015).

Freedom of assembly is guaranteed by Lithuanian laws and is respected by the government (HRR 2014). Civic groups are free to form non-governmental organisations (NGOs) and do not face obstacles in the process of registration (FitW 2015). The main obstacle for NGOs’ activities is the reduction of funding due to the financial crisis, but funding has again started to increase (NiT 2015). The government passed a new law regulating the activities defining and regulating the organisational structure of NGOs as well as their cooperation with authorities, allowing for more responsiveness from state bodies (NiT 2015). The anti-corruption NGO 'White Gloves' was launched by a group of young Lithuanians, with its main purpose to fight political corruption on a national level.

Sources

Topics: Europe & Central Asia