Armenia Transparency International Global Corruption Report 2004

TRANSPARENCY INTERNATIONAL GLOBAL CORRUPTION REPORT 2004
(covering worldwide corruption from July 2002 to June 2003)

ARMENIA

Corruption Perceptions Index 2003 score: 3.0 (78th out of 133 countries)
Bribe Payers Index 2002 score: not surveyed

CONVENTIONS:

Council of Europe Civil Law Convention on Corruption (not yet signed)
Council of Europe Criminal Law Convention on Corruption (signed May 2003;
not yet
ratified)
UN Convention against Transnational Organized Crime (ratified July 2003)

LEGAL AND INSTITUTIONAL CHANGES:

The law on parties, passed in July 2002, regulates issues related to the
formation, reformation and liquidation of parties, as well as their
activities and legal status. It prohibits party members who work in the
state and local government from using their positions for the benefit of the
party.

The laws on the tax service and customs service, both passed in July 2002,
are designed to ensure that government posts are filled through open
competition and to prevent employees from working with immediate relatives.

The new criminal code, passed in April 2003, binds government officials to
conflict of interest regulations and enlarges the definition of corruption
to include the illegal involvement of public officials in business
activities. Yet it also sets milder penalties for corruption-related crimes,
such as the abuse of power and position by public officials and the giving
and taking of bribes. Punishment for abuse of power can vary from a fine of
200 times the defined minimum monthly salary to imprisonment for two to six
years.1

The bill on freedom of information regulates the rights of those who possess
information and defines the rules, procedures and conditions for receiving
information from government institutions. The law ensures access to
information as well as its dissemination and transparency. It also provides
that requested information be delivered within a five-day period, unless it
requires additional work, in which case it must be provided within 30 days.
At this writing, the bill was expected to pass into law.

The ombudsman law aims to regulate the appointment and dismissal of the
ombudsman, as well as related rights and obligations. It provides that the
ombudsman be appointed by the president and approved by the national
assembly for a five-year
term. The ombudsman is to be independent, adhere to the constitution and
enjoy immunity during the term of office. The law has passed the second
reading, but has not yet been promulgated.

A controversial law on mass media, allowing for increased state control of
the media, is in draft form. Protests prompted the justice ministry to
submit a revised draft in 2003, but critics are still not appeased.

THE UNCLEAR STATUS OF ARMENIA’S ANTI-CORRUPTION PROGRAMME

Since Prime Minister Andranik Margaryan established the state
anti-corruption commission in 2001, progress on the development of a
national anti-corruption programme has been slow and less than transparent.2
The final proposal for the programme is currently pending approval, yet its
complete contents have not been shared openly.

In early 2002, at the request of the government, the World Bank allocated US
$300,000 to draft the anti-corruption strategy programme.3 An expert group,
comprised of two international and six local experts, was formed to work on
proposals for legislative, institutional and public-involvement measures, as
well as a detailed implementation plan. Their proposals had to include
mechanisms for monitoring and evaluating anti-corruption activities.

Since one of the World Bank’s requirements was the active involvement of
civil society in a transparent drafting of the anti-corruption strategy
programme, members of the National Anti-corruption NGO Coalition were
invited to attend one of the expert group meetings.4

At the international level, the OSCE took the lead in coordinating donor
assistance in combating corruption through the international Joint Task
Force (JTF), which included all the key international organisations and
diplomatic missions. Following discussions with the president and prime
minister, an agreement was reached on maintaining regular contacts between
the JTF and the government during the strategy’s development.

Initially, the expert group prepared a broad strategy outline of more than
200 pages, which had to be discussed in detail with the JTF and civil
society. The group also prepared a detailed plan for implementation. By July
2002, two workshops were organised to present and discuss the draft
strategy. Its main elements included issues such as the economic transition
and shadow economy; energy, infrastructure and natural resources; oversight
and regulation; the legislative and regulatory environment; the political
system and elections; civil society participation in anti-corruption
initiatives; e-governance and access to information; and international
cooperation.

The expert group completed the first version of the programme later than
expected, in August 2002, and circulated it to ministries, agencies and the
JTF. The delay may be explained by the fact that the presidential and
parliamentary elections were due to take place in 2003. The public sector
reform commission, which serves as the secretariat for the anti-corruption
commission, then announced that the ministries and agencies had reviewed the
programme and that the final version had been submitted to the prime
minister for approval in March 2003. At 23 pages, however, the revised
action plan is a fraction of the length of the original plan, eliciting
heavy criticism from the JTF.

The revised plan has not been reviewed by civil society, which is still
concerned about several issues. One particular area of concern relates to
the establishment of an independent body that would be responsible for
implementing and monitoring the anticorruption strategy programme. One model
suggested by the expert group was that the current anti-corruption
commission itself take on this role. In this case, a secretariat that could
coordinate everyday work and implement decisions would have to be formed to
serve the commission.

An alternate suggestion called for the creation of an anti-corruption agency
with full investigative and law enforcement powers. Critics of this model
argue that, instead of creating a new enforcement body, the capacity of
institutions that already have such powers should be strengthened.

A third option envisions the establishment of an anti-corruption council
responsible to the prime minister or the justice minister. This council
would consist of the representatives of the president’s office, national
assembly, constitutional court, as well as the chief of staff of the
government, key ministers, the prime minister’s adviser on anti-corruption
and the general prosecutor. The council would also include five
representatives of civil society, appointed by the president.

Regardless of which model is accepted, the anti-corruption body must secure
the trust of the people, most of whom are unaware that the government has
even developed anti-corruption initiatives. Those who are aware have little
confidence that the initiatives are effective, because they view government
officials as the main initiators of corruption. They do not believe that
those who are corrupt can be truly committed to fighting corruption.5

ARMENIA’S 2003 ELECTIONS: A CASE FOR REFORM IN POLITICAL PARTY FINANCING

A civil society monitoring project, undertaken during parliamentary
elections in May 2003, revealed troubling inadequacies in the regulation and
monitoring of political party financing.6

Using the project’s findings, the opposition Ardarutyun (Justice) alliance
appealed to the constitutional court to nullify the election results. The
alliance pointed to violations of election procedures and voting
irregularities, alleging that tens of thousands of ballots cast for
Ardarutyun were allocated to other parties. The official result was that
Ardarutyun won 14 per cent, rather than the 50 per cent or more that it
claimed. The opposition also contested the election results in 19
single-mandate constituencies.

Although Ardarutyun’s appeal was dismissed due to insufficient evidence, the
court admitted that the issue required attention and proposed to promote
greater transparency and accountability in the management of political party
financing. Armenia’s election process is regulated by an electoral code that
needs considerable revision. The provisions that cause most concern relate
to the opaque system of party financing and the lack of enforcement
mechanisms.7

According to article 25 of the code, the parties’ declaration forms must be
published by the Central Electoral Commission (CEC) in the format determined
by the CEC. During the recent elections, the sources of the parties’
pre-election income were never published though the issue drew strong public
interest and was regularly discussed in the media.8 Although required by law
to present this information to the CEC, the parties and blocs were willing
to publicise only the number of contributors to preelection funds. In some
cases, parties did not reveal any information at all.

Reasons for concealing the revenue sources vary. Some parties may be
involved in money laundering or using foreign funding, which is prohibited
by law. Furthermore, as Armenia’s business sector is not well regulated and
many businesses tend to hide their real turnover, they may wish to prevent
the tax authorities from learning of their donations to party pre-election
funds. Finally, rivalry between the opposition and government does not
encourage businesses to publicise their contributions to preelection funds.

After two rounds of presidential elections in February and March 2003, only
the candidates’ total campaign revenues and expenditures were published.
When queried about the rationale behind not publishing more detailed
information, the CEC head, Artak Sahradyan, replied that the commission had
not published itemised accounts because it had not identified any violations
of party finance regulations.

The monitoring team found that two of the 11 parties and blocs that agreed
to provide campaign finance information had exceeded the limit of the
pre-election fund.9 An analysis of the figures showed discrepancies for all
other parties except one, whose reported data was consistent with that of
the project’s findings. Indeed, the overall tendency observed was that
almost all the parties avoided registering their campaign expenses in the
pre-election fund and that they spent most of their money ‘outside the fund’
.

Further results showed that violations of party finance regulations fell
into two major categories. First, large sums were not properly accounted
with respect to political advertising on television. TV companies either
offered certain parties discounts, or provided more airtime to selected
parties than was officially declared.10 Second, the code requires all party
publications to mention the number of copies printed and the name of the
publisher. Several parties and some experts revealed that parties often
printed more copies than officially declared.

In some cases, campaign materials were ordered before the campaign period
and paid for from the party account. Moreover, a number of parties conducted
transactions with service providers without a contract; money for these
services was paid in cash, which is prohibited by law.11

These types of violations are motivated by several factors. By paying cash,
parties avoid the 20 per cent VAT and service providers evade taxes. For
parties, especially those exceeding fund limitations, such dealings
represent a way around the preelection fund.

Another concern is that the law is vague about what expenses should be
covered by the pre-election fund, as opposed to the party account. During
the campaign period, for example, parties continued to pay expenses related
to their permanent office(s) through the party accounts, while expenses
related to temporary sub-offices were covered by the fund. In general,
parties hid the cost of temporary offices, stating that party members or
relatives provided office space free of charge.

Salaries were another issue of concern, since parties concealed their true
expenses to avoid paying taxes. Violations related to travel expenses and
administrative costs were also apparent but difficult to monitor
systematically.

The Control and Review Service (CRS) – established ad hoc under the CEC – is
responsible for regulating such violations and taking the necessary action.
Despite substantial media coverage and the results of the monitoring
project, the CRS filed no reports of party finance violations by the review
deadline. While the law itself provides too much flexibility to parties and
does not allow for easy monitoring, the reluctance of Armenia’s state
institutions to enforce the law is at the root of ongoing abuses in
political party financing.

Arevik Saribekyan (Center for Regional Development/TI Armenia)