Enlargement without State Capture: A Call for Action for the Next European Commission

By: Daniela Mineva, Senior Analyst, Center for the Study of Democracy (CSD); Boyko Todorov, Senior Associate Fellow at CSD; Ruslan Stefanov, Program Director and Chief Economist at CSD and SELDI Knowledge and Outreach Coordinator

The promise of enlargement to the Western Balkans, delivered back in Thessaloniki has returned through the jolt of Russia’s invasion in Ukraine, reminding Europe of the importance of common values based on the rule of law. Yet, EU’s transformative conditionality-based governance and prosperity effects on candidate and accession countries have been lost (to some) in transactional diplomacy, systemic corruption and state capture. Serbs have been consistently led into disbelief towards Brussels, through the works of well-known in the region politico-oligarchic networks. Macedonians are also losing faith, as North Macedonia has been waiting for almost 20 years for its political leadership to make an EU breakthrough, while former leaders hide from justice in Hungary. This political stagnation has been actively sought and exploited by Russia and China which provided the Western Balkans’ political elite with an escape clause against reforms based on dubious nationalistic illiberal narratives, garnered with grandiose non-transparent infrastructure, energy, and military deals. This, in parallel with the expansion of BRICS, has demonstrated once again that the European Union needs more efficient geopolitical instruments.

The EU just announced opening negotiations with Albania in September 2024, decoupling the country from North Macedonia, and sending a strong signal it would not rescind on its merit-based approach. Montenegro aims to close the technical process of negotiations in 2025, making it the frontrunner to join next the EU even within the mandate of the next European Commission 2024 – 2029.

SELDI.net, the largest anticorruption civil society community in the Balkans and the Black Sea, has shown how EU’s efforts have led to technical improvements but no breakthroughs in ensuring a functioning rule of law. Currently, newly adopted legislation in the Western Balkans is not enforced, while newly created public bodies lack capacities and remain inefficient. The anti-corruption strategies do not address the risks of foreign influence through corruption, they also lack impact, focus and measurable goals. In addition, the so-called EU flag procedure, designed to fast-track legislation related to EU accession, is in danger of being used as an excuse for skipping public consultations, as noted in SELDI’s latest Regional Anti-Corruption Report 2024.

In that situation, many have been wondering: has the EU run against the boundaries of its transformation potential and would this encourage further encroachment of the authoritarian model that Russia and China peddle internationally? Or will it be able to overcome external pressures and internal roadblocks as set for example by the path chosen by one of the most Eurosceptic countries in the Union with Hungary’s taking over the EU presidency? In any case, Europe needs success stories, fast and convincing, and for this, the public-private partnership triangulation model of engagement with civil society and reformist government members has never failed to deliver.

Millions Spent, Little Progress: Will the EU’s New Funding Deliver Results?

For the citizens of the region, EU enlargement still remains the best hope for a more prosperous and peaceful life. Yet, if the EU wants to continue exerting its soft transformational power over the Western Balkans and in its Eastern Neighborhood, it needs to find new impetus for reforms and strengthen its internal governance.

The European Union has already invested heavily in rule of law reforms for the Western Balkans.  For example, a staggering EUR 690 million was spent under IPA II (2014-2020) specifically for this purpose. However, this significant funding has not translated into a decrease in bribery, a weakening of state capture, or a surge in investigations and sanctions against high-level corruption. This raises a critical question: will the same fate await EUR 9 billion foreseen under the Economic and Investment Plan for the Western Balkans 2021-2027, or EUR 6 billion funds to be distributed under the Growth Plan for the Western Balkans through the Reform and Growth Facility (2024-2027)? And will the existence of a functioning rule of law continue to be both a requirement, and an objective of the EU assistance?

After years of accepting regulatory activism, creation of new institutions and adoption of laws as the “last checkbox” and the final destination of reforms, it seems that the EC has begun to strengthen its impact and result-oriented conditionalities. This process however is still gradual, cautious, and mainly applied in relation to the EU member states. While the utilization of Article 7 of the Treaty of the European Union (so far only for fund freezing) and linking the rule of law advancement with the Recovery and Resilience Plans are welcome developments, further questions remain regarding the existing veto powers of Member States (as the case of Hungary’s veto over the proposed EUR 50-billion macro-financial assistance to Ukraine has shown). Belgium’s call for Hungary’s voting rights in EU to be revoked is just one of many indications that stronger mechanisms are needed. Other legal optionscould also be explored, such as evoking Article 31 of the Treaty which foresees several possibilities for moving away from unanimity to qualified majority voting. If the Member States themselves enjoy exceptions from the rules, how could the EU demand results from the Western Balkans?

Shake Off the Denial

The first step towards change is to accept the reality. State capture is already entrenched in candidate countries (and some member states), and no substantial reforms could be achieved solely based on the will of local political leaders and business elites. In this situation, the main responsibility for exercising oversight and pressure for upholding the rule of law falls to the external partners (EU, US), and civil society. Thus, donors’ support should be given with priority to reform-minded CSOs, experts, and policymakers, while the focus is placed on actual impact and results.

Legal and Institutional Changes do not Equal Impact and Law Enforcement

The EU’s approach to accession conditionalities needs a course correction. While legal and institutional frameworks are essential, their mere creation is not enough. Current plans lack the necessary determination and ambition to ensure effective enforcement of these new rules. The EU could undertake several actions to address these challenges:

• Focusing on impact: Result-oriented target indicators such as maximum corruption levels, share of corruption indictments resulting in final sentences, and share of concluded investigations in high-level cases out of all received whistleblowers’ or investigative media reports, should be introduced in all candidate countries’ Regular Reports on Enlargement. Such indicators should further be included in all national anticorruption strategies. The same is valid for the assessment of the EU member states. The EU’s Rule of Law Report should place a larger focus on the achievements in tackling high-level corruption, dismantling oligarchic networks of influence, the evasion of sanctions, and the efficiency of investigation of financial crimes.
• Improving the legal base: The proposal for a new EU Directive combatting corruption should be adopted swiftly, leading to the harmonization of the legal definitions, the criminalization of corruption crimes, the introduction of stronger liability for legal persons, and the related common approach towards sanctions, prevention and enforcement. The EU would also need to find a solution to the more challenging task – how to define in legal terms “state capture” and “strategic corruption”, in order to move forward with their active prosecution and punishment. Additionally, criminalizing both sides of foreign bribery (supply and demand) requires more engagement from the EU members. Sweden’s struggles with prosecuting foreign bribery, due to limited legal definitions of this offense, illustrate this need. The EU could draw inspiration from established legislation in other countries, such as the U.S. Foreign Corrupt Practices Act (FCPA) from 1977, the Global Magnitsky Act of 2016, and the U.S. Foreign Extortion Prevention Act (FEPA) from 22 December 2023.
• Enhancing investigation and prosecution of high-level corruption and sanctions’ evasion: The mandate of the European Public Prosecutor’s Office should be expanded to include the violations of EU sanctions against Russia. In addition, a mechanism should be put in place to question why the national authorities do not initiate investigations against high-level politicians and individuals sanctioned by U.S., the UK and other jurisdictions. The work of AMLA should be operationalized as soon as possible. All Member States and candidate countries should be trained on the use of unified methods and standards for tracking illicit finance across borders and detecting financial crimes, including through the use of cryptocurrencies. The Asset Recovery Offices and competent national authorities should also begin to more efficiently trace and identify assets in criminal investigations.
• More efficient prevention and risk assessment: As discussions at the International Anti-Corruption Conference (IACC) in 2024 have shown, corruption risk assessments should go beyond potential monetary losses and the frequency of corruption instances. The use of big data and AI for assessing corruption, integrity, as well as security risks would only be possible through the interlinking of all national public registers, the creation of EU-level datahubs or coordination centers, as well as establishment of channels for cross-border exchange of information (e.g. RAI’s International Treaty on Exchange of Data for the Verification of Asset Declarations where the EU could become a key member).
• All countries, both EU and non-EU member states, should break away from the tradition of welcoming unchecked financial flows from authoritarian regimes and local oligarchs, by implementing strict investment screening mechanisms. The EC needs to urgently establish common guidelines for building the candidate countries and EU member states’ capacities in areas such as the performance of complex financial investigations, detailed checks of PEPs’ asset declarations, tracking illicit finance hidden abroad, countering mis-invoicing and money laundering, the introduction of e-auditing, as well as a monitoring mechanism that these procedures are implemented at a country level. It is not sufficient anymore to rely only on OECD, GRECO and UNCAC guidelines.
• Showing a stronger commitment to the European future of the Western Balkans: A hopeful sign is the inclusion of enlargement as an item in the EU Strategic Agenda for 2024-2029, a welcome difference from its 2019-2024 version. The European Commission and the local EU Delegations also need to expand their direct interaction with the policy-makers and the civil society in the region through the Western Balkans countries’ participation in informal Councils, regular Ministerial-level meetings, technical committees, and Commission working groups, as foreseen in the  2018 EU Strategy on the Western Balkans.

Seeking Better Return on Investment from Donor Money

As SELDI members gather with EU and Western Balkans political leaders in Tirana, Albania on October 3, 2024 for its Annual Regional Anti-Corruption Forum its Regional Anti-Corruption Report 2024 underlines that in order to become more effective, EU’s funding approach should change to add to the conditional assistance also an investment logic. This would entail the exercise of political due diligence whereby risks are evaluated ex ante and checks are performed for the decision-making powers of politically exposed persons in the various funding streams. The assessment of the risk of capture of EU aid by domestic and foreign (Russian or Chinese) clientelistic circles in the candidate countries should mirror the economic security effect the EU seeks through its investments screening framework.