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Austria’s Strache affair and the undue influence toolkit

A week ago, German newspapers Süddeutsche Zeitung and Der Spiegel published evidence of the former Vice-Chancellor of Austria, Heinz-Christian Strache and a colleague apparently negotiating corrupt deals with the purported niece of a Russian oligarch close to President Vladimir Putin.

Both Strache and the colleague, Johann Gudenus, have resigned and their party, the right-wing populist FPÖ, has been kicked out of the Austrian governing coalition, triggering snap elections expected in September. The country’s chancellor, Sebastian Kurz, is facing a vote of no confidence.

Strache and Gudenus were caught on hidden cameras meeting with a woman and her associate on Ibiza in 2017. She claimed to be in the process of buying a controlling stake in Kronen Zeitung, Austria's biggest-selling tabloid, and said she would use the paper to promote the FPÖ in elections in Austria later that year.

The woman was actually a decoy, and the meeting a hidden-camera operation, so no real deals were struck. Yet, the scandal shows that even in countries perceived as relatively corruption-free, undue influence can fuel the abuse of power and lead to state capture. It illustrates the tools and methods used by those who wish to enrich themselves from public funds and advance private interests over the public good; how media manipulation, suspicious procurement deals and dark money in politics can be used to sway elections; and how illegal money can be cleaned for the criminal and corrupt to the detriment of us all.

Here we break down the main issues, why they matter and what can be done about them.

Political control of media

Not only did Strache approve of the proposed takeover of a key media institution, he talked admiringly of the way the state media in Hungary is used to advance the interests of the ruling party. The Austrian equivalent would be the state broadcaster ORF, which is funded by the public but controlled by a politically appointed body. The FPÖ has been accused of trying to exert more political influence over ORF, which has been perceived to be largely critical of Kurz’s coalition government.

Transparency of media ownership is a critical area for ensuring a healthy media landscape. As in other business areas, however, finding out who actually controls a media company is not always possible. Research by Access Info Europe shows that in only nine of 20 European countries assessed can the public find out who owns media outlets using reporting to regulators or company registers.

In many countries, including the largest economies, Transparency International is calling for public registers of beneficial – i.e. actual – ownership of companies. Properly verified and easily accessible company ownership information would help diminish the undue influence of money in politics. In the case of media ownership, it would allow the public to understand any hidden agendas and alliances between media, politics, and other business interests.

It isn’t just about ownership. Editorial independence of journalists needs to be guaranteed; otherwise media stop doing their job as watchdogs and become mouthpieces for vested interests. There is also a clear link between a free and safe environment for journalists and effective control of corruption. In Europe and elsewhere, however, some politicians have campaigned on an anti-corruption agenda, and then cracked down on press freedoms once in office.

Illegal campaign finance

According to Süddeutsche Zeitung, Strache and Gudenus suggested another idea: “"If she wants," Strache said twice, "if she likes the idea," she could make a donation to the party.”

In Austria, there is a €2,641 cap on political donations from foreigners, so the politicians floated the idea of using a third party, or ‘the association’, to disguise the origins of a donation to the FPÖ.

In many countries political parties rely on private donations not only for their core activities but also to run election campaigns. The problem arises when large contributions start to exercise undue influence on politics. Some countries have reformed their political systems with the aim of striking a balance between encouraging moderate contributions and limiting excessively large ones.

Measures range from restrictions and limits on private contributions, including on foreign contributions, to requirements that enhance transparency of party funding and credibility of financial reporting. In the midst of all these restrictions, parties still might attempt to circumvent regulations through the use of other institutions – such as associations, foundations, think tanks, as conduits for funds or services.

The majority of countries still lack legislation on entities related to political parties, which allows parties and candidates to avoid state and civil society oversight by transferring questionable donations from accounts that must be publicised to one that is not.

So-called dark money in politics makes it impossible for voters to know if a politician is acting in the interests of their donors or other private interests.

Inflated government contracts

At the meeting, doubtful procurement practices emerged as the main way that Strache could pay the woman back for her support. If he comes to power in the election thanks to media support from Kronen Zeitung, he suggests, then lucrative public contracts would go to a company set up by the paper’s new owner. They also discussed inflating the price of the contracts.

When public contracts are awarded not on merit but as political favours or ways to siphon off public funds, service delivery inevitably suffers, and tax payers lose out.

There are some tried and tested ways of reducing the risk of corruption in public procurement.

Initiatives like Transparency International’s Integrity Pacts involve independent civil society organisations and affected communities in the oversight of expensive public works projects across the EU. According to this model, independent monitors are granted access to the entire procurement process and work to make sure that open contracting principles are respected throughout. One example is the integrity pact Transparency International Austria delivered during the refurbishment of the Austrian parliament building.

Some Transparency International chapters have also developed online monitoring tools that allow citizens and media to scrutinise government spending like ProZorro in Ukraine and TenderMonitor in Georgia.

Globally, there are tools like the Open Contracting Data Standard, which – when applied – contribute to an environment of transparency that allows media and civil society to spot signs of corruption and back-room deals.

Disguising dirty money

Strache and Gudenus are explicitly told that the origins of the woman’s wealth are not exactly legal. However, the woman acting as the investor reassured politicians she would be able to conduct business anywhere in Europe, due to having a Latvian passport.

This detail may have made her story even more believable as oligarchs from post-Soviet countries have been known to be drawn to EU passports and residence permits. These can come in handy, for example, when dealing with Western banks. They can also help evade tax and economic sanctions.

The high demand is matched with plenty of supply. Most EU countries offer special migration programmes to rich investors. What's more, a dozen EU countries run programmes particularly attractive to individuals like the ‘niece’ of the oligarch: these do not require relocation and consider purchase of real estate or a donation enough to qualify as an investor. Together with Global Witness, we have identified a myriad of corruption risks in this particular subset of investor programmes – nicknamed as ‘golden visas’ – including money laundering and evasion of sanctions.

There is no indication in the story whether the fictitious niece of the oligarch had obtained her EU passport through such a scheme. But Latvia is one of the EU countries with a golden visa programme known to attract Russian nationals. Investors there receive residence permits and can apply for citizenship after ten years.

In the past year, the European Commission and the European Parliament have echoed our findings and recognised the unacceptable corruption risks that these golden visa schemes create. EU-wide standards seem to be in sight.

The politicians suggest that the oligarch’s niece purchase property in Austria. Money laundering through real estate purchases is a widespread global practice. In Germany, our chapter found that in 2017 alone, around €30 billion of international money of unknown origin flowed into the German real estate market, while the number of foreign owners of real estate is completely unknown. This highlights that the existing laws and the resources of the investigating authorities are no match for the unlimited nature of international financial flows.

Similarly, Canada has some legislative loopholes to close that currently allow beneficial owners of properties to stay anonymous and withhold information from tax authorities, facilitating money laundering in the real estate sector.

The woman in this fictitious case had reportedly offered to buy a piece of land from Gudenus at five times the price. This is a common practice: when criminals and the corrupt launder their dirty money by buying property, they aren’t overly concerned with paying a fair market price. This drives up the cost of real estate for everyone else.

These issues can and must be addressed through policy reforms that oblige beneficial owners to identify themselves.

In who’s interest?

Fundamentally, in the video, Strache and his associate seemed to be willing to shape the Austrian media and political landscape in their favour with the help of a family close to the authoritarian government of Russia. There is no indication in the reporting that they questioned the political motives that might be behind the approach.

The aim of authoritarian regimes to undermine the pillars of democratic societies and export a corrupt patronage system of governance is itself a major threat to the fight against corruption in Europe, and around the world. But this toolkit for undue influence is used the world over, with or without foreign interference. The Strache case highlights the urgent need for regulating party financing, something our chapter in Austria has campaigned for since 2017.

We don't know who laid the trap that caught Strache and Gudenus. Süddeutsche and Spiegel say they don't have credible information about who was behind the undercover operation. The fiction, however, is unfortunately all too believable.

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