Greece is perhaps the best example of how a corrupt political and commercial system can undermine an economy and prevent it recovering from recession. The country has a patent and overwhelming corruption problem that weakens efforts to reduce its huge debt burden, expected to reach almost 190% of GDP in 2012. Meanwhile, a politically unstable tri-partite coalition government of conservatives, socialists and leftists is struggling to push through painful reforms and austerity measures demanded by Greece’s lenders, all during a continuing recession.

Greece ranked 80th out of 183 countries worldwide in Transparency International’s Corruption Perceptions Index for 2011, making it the most corrupt country in the European Union (EU). In its report, the Greek arm of the organisation estimates corruption in Greece for 2011 cost legitimate companies and public bodies Euro EUR554 million, with around two-thirds of that found in the public sector. Corruption is a reality faced by almost all companies operating in the country. An Ernst & Young study conducted between November last year and February 2012, found 68% of Greek businessmen and women admitting that “bribery/corruption practices are often adopted” in their country while a trenchant 89% agreed there is “a lot of corruption in Greek society”. More importantly half of them believed the use of bribery for attracting new business or keeping existing sales “is acceptable as long as it helps decidedly in the survival of their company in a context of economic crisis”. This was up from 40% believing the same in 2010 as the country’s financial crisis was just starting.

Dr Ioannis Filos, professor of auditing at Panteion University in Athens and a director of the Greek chapter of the European Business Ethics Network told Fraud Intelligence that there are certain cultural and organisational practices that allow Greek corruption to thrive and resist efforts to kill it off: “Most of the public services and departments (hospitals, tax authorities, city planning authority, municipalities, universities etc) are not properly established, organised with proper IT, supported, staffed and supervised; there is lack of punishment and a clear perception in society on that; and the auditing/supervision mechanisms could and should play a very important role.”

This lack of punishment is a most important problem according to young MP, Christos Dimas. Elected first time this year for the New Democracy Party, (which is part of the ruling coalition), Dimas, 32, is keen to disassociate Greek politics from corruption. He also has a fine political pedigree, being the son of Stavros Dimas, Greece’s former EU environment Commissioner.

“Despite the fact that in the past there have been various corruption allegations very few people have been actually punished,” Dimas complained to Fraud Intelligence. “This has logically helped create a credibility deficit regarding all types of institutions ranging from the parliament, government and judicial system to the civil service, trade unions, media and the church,” he said. Dimas accepted that Greece’s corporate networks were “dysfunctional” and that established interests had accumulated so much power “they are able to block attempts to reform [creating] a political, economic and social deadlock.” As a result, “although some governments may have had the intention to reform the public sector and fight corruption they did not have the means to actually implement this,” said Dimas.

And it is true – very few people are convicted in Greece for corruption. Yet there are exceptions. This week (December 13), banker Lavrentis Lavrentiadis was arrested, and charged with fraud and embezzlement for misappropriating more than EUR50 million from his small Proton Bank, while his assets have been seized following a court decision the previous day. Proton Bank was nationalised last year with the help of funds from the EU and the IMF.

In April, an Athens court sentenced Pavlos Psomiadis, former president of banking and insurance group Aspis, to eight years jail on charges of forging documents to keep his business afloat. Psomiadis was found to have forged a letter of credit for more than Euro EUR550 million, which was submitted to regulators in 2009.

Politicians are still virtually untouchable however, with the exception of one so far. Akis Tsochatzopoulos, an elderly former high profile leading politician of socialist party Pasok, is in jail – along with his wife, daughter and other relatives- awaiting trial on corruption charges, which he denies. The former defence minister is accused of having received hundreds of millions of euros in kickbacks on weapons contracts. Tsochatzopoulos, a former strongman of the once dominant Pasok, has repeatedly threatened to “speak up” and “destroy” many of his colleagues. All weapons buying contracts from 1996-2010 are now being investigated (that includes a 2004-9 government under New Democracy), with another former Pasok defence minister Yiannos Papantoniou being investigated over alleged wrongdoing involving contracts such as a USD660 million Apache helicopters deal signed in 2003.

But perhaps the most notorious corruption recent case and one that still causes controversy involves German company Siemens, which has been involved in a multitude of contracts across the country, ranging from traffic lights and telecommunications to the construction of the new Athens metro and providing security systems during the Athens 2004 Olympic Games.

A Greek parliamentary committee investigating allegations that Siemens bribed numerous politicians, political parties and other officials to the sum of around EUR100 million has named 15 ministers from Pasok and New Democracy (both members of the current governing coalition) – as recipients of bribes. However a combination of political disagreements on drafting a common list of suspects and a controversial law offering protection from prosecution to government ministers has turned the whole parliamentary investigation into a farce. Only two former Pasok officials have thus far admitted taking Siemens’ money with one admitting to receiving a personal campaign donation and the other saying it received payment on behalf of his party.

Following its 2008 payment in the USA of USD800 million to settle charges it violated the US Foreign Corrupt Practices Act and paid another USD800 million in fines to German authorities, Siemens this August settled corruption allegations with the Greek government. It agreed to write off EUR80 million of Greek debt, pay EUR90 million in cash to the government for various purposes and spend EUR100 million in new investments. The deal was widely criticised by the opposition, given the parliamentary committee had claimed corrupt practices by Siemens had cost the country EUR2 billion (the company denied this). Meanwhile investigations continue into Greek citizens alleged to have accepted Siemens’ bribes. And some MPs say Siemens should not be involved in infrastructure contracts in Greece for the immediate future. Only recently a group of MPs, including Dimas, asked ministers for the details of a contract awarded, controversially, to a consortium led by Siemens to build an underwater power line to the Cyclades islands. “Regarding Siemens, that there are judicial decisions pending,” said Dimas, saying he wanted more information on public procurement processes associated with the project.

Meanwhile, the links between corruption and political power within Greece have been described graphically in a study for the Fama-Miller Center for finance research, at the University of Chicago’s Booth School of Business. The authors of ‘Tax Evasion Across Industries: Soft Credit Evidence From Greece’ claims the Greek parliament is dominated by occupations who in most countries would be regarded as pillars of respectability, (such as doctors, engineers, private tutors, accountants, financial service agents, and lawyers), but who in Greece are notorious tax evaders. The study argued that “out of 14 industries [whose professionals are also MPs], the three most tax-evading account for about half (0.483) of the parliamentary votes; [and] the four most tax-evading industries account for approximately a supermajority (0.657) of votes.” It noted, in the 300-seat Greek parliament, there are 40 doctors and other medical professionals, 43 engineers, 28 tutors and 40 accountants or other financial service providers: in most countries, this would be normal – but in Greece, it is cause for concern, it would appear. Simply, as Nikos Peppas, Greece and Cyprus country manager for leading business analytics software and business intelligence SAS, told Fraud Intelligence, transparency “is a hot potato at the hands of the authorities… Even when given the necessary information the authorities have difficulty in using it. The handling of [such information] depends on political will not technology,” he said.

The challenge is great. Dimas, admits there is public pressure on MPs “to bend rules since the notion of clientelism exists [among] a minority of citizens (usually worried parents or grandparents), who believe that politicians can help their children or grand-children find a job in the public sector through non-transparent methods.” The New Democracy MP told Fraud Intelligence that “one of the major problems in Greece is that we lack the notion of citizenship, instead of seeking the collective good we only look at achieving our individual interests.” There is also pressure for reform from companies and business-people, but Dimas said this is not just about reducing corruption, it is also about making Greece’s corporate system more efficient: “Some of their requests include the simplification of procedures, decrease of bureaucracy, installation of a stable tax system. “

All is not lost, however. The crisis has generated a sense that citizenship needs to be more valued and demands for fighting corruption have increased. Dr Filos told Fraud Intelligence that he stresses to his auditing university students how financial stress can encourage people to become involved in fraud and corruption. And he encourages them to look hard for wrongdoing, saying that in Greece, the possibility of uncovering a wrong action/fraud/corruption/scandal is very high and to a degree unexpected by the wrong doer.”

Dimas is clear on what needs to be done – and sooner, rather than later: “One essential reform would have to do with the functioning of the judicial system. A strong, decisive, independent judicial system is required in order to be capable to make quick decisions. The slow pace of reaction of the current judicial system is the main cause of its incapacity to deal effectively with the problems,” he told Fraud Intelligence.