Wednesday, 30 March 2011

Cash-for-amendments scandal just the tip of the iceberg

New rules needed to curb power of corporate lobbyists in the European Parliament

Unleashing one of the biggest lobbying scandals in EU history, the Sunday Times has in the last two weeks exposed four MEPs who had agreed to table amendments to change an EU law in return for promised payments. In a sting operation, undercover journalists from the UK newspaper posing as lobbyists for industry clients approached 60 MEPs inviting them to join the advisory board of a fake lobby consultancy firm and assist with influencing decision-making in the Parliament on behalf of the lobby firm’s clients. No less than 14 MEPs agreed to meet with the fake lobbyists to discuss the 100,000 euro per year offer. Video footage released by the Sunday Times strongly suggests that Romanian MEP Adrian Severin, Austrian MEP Ernst Strasser, Slovenian MEP Zoran Thaler and Spanish MEP Pablo Zalba Bidegain accepted the offer. Thaler and Strasser resigned following the revelations, but Severin and Zalba have so far refused to do so. The Christian-Democratic PPE, the Parliament’s largest group, has defended Zalba, arguing he “did not accept money or compensation.” The video released by the Sunday Times shows that Zalba was planning to take up the offer and that he tabled an amendment that the ‘lobbyists’ had given him.

The Parliament President Jerzy Buzek has started an internal investigation, and Transparency International has called upon the Belgian Public Federal Prosecutor to take the lead and prosecute all four cases. The scandal has sent shockwaves through the European Parliament and kick started a debate about corruption and ethics, and also about the Parliament’s weak rules around financial interests and relations with lobbyists. Buzek told MEPs last week that the Parliament must “strengthen its code of conduct” for such cases and introduce “a legally binding code of conduct for lobbying in EU institutions”.

The European Parliament does indeed urgently need a sweeping overhaul of its rules on ethics and conflicts of interests, which are absurdly weak. In the past, many MEPs have been hostile to stronger rules in this field. This has led to bad habits, some of which have now been exposed by the scandal. The extent of the problem is underlined by the fact that 14 out of 60 (almost 25%) of the MEPs approached by the undercover journalists agreed to meet, apparently willing to take the offer seriously.

Many MEPs have a far too close a relationship with corporate lobbyists which results in undue influence for industry. Ernst Strasser, one of the accused MEPs, was covertly earning hundreds thousands of euros lobbying for industry while an MEP. All this was happening before the Sunday Times’ sting operation. He co-owned the consultancy firms CIN and CCE-Consulting, was employed by PR agency Hochegger and has lobbied for companies including Rail Holding and Group4Securior. This last company, ironically, handles security in the Parliament and so was responsible for sealing Strasser’s office to allow an investigation to be carried out. Austrian media reported in February that there were rumours that Strasser was using his role as an MEP to arrange meetings at the Commission for industry clients. Strasser denied this at the time, but the Sunday Times report suggests the rumours may have been true. Strasser was caught on tape saying: “Right now I have an excellent opportunity to get to know people, to build a network and use this for my company.” About being an MEP and a lobbyist at the same time, Strasser said: “Off course I am a Lobbyist”. “This is a very good combination. I see it now after one year: there are many people that are competing and who need something. And when one is there as a Parliamentarian this can open doors .”

There are no rules to stop MEPs having other jobs – and many MEPs do. A recent in-depth report published by Reuters exposed several examples of prominent MEPs with other jobs that appear to create conflicts of interest. The German MEP Klaus-Heiner Lehne is a partner at law firm Taylor Wessing, where he continues to work one day per week. Another German MEP Anja Weisgerber has a second job with another law firm, GSK Stockmann. Both these firms are involved in EU lobbying. MEP Edward Scicluna is the non-executive chairman of two Maltese investment funds linked to global bank HSBC. Veteran MEP, Elmar Brok is on the pay-roll of media giant Bertelsmann.

Many other examples could be added to this list. The Parliament’s lack of ethics rules even allows MEPs with such jobs to serve as rapporteur on legislation on issues where there are clear conflicts of interest. In the previous Parliament, the UK MEP John Purvis acted as a rapporteur for the Economic and Monetary Affairs Committee on a report on hedge funds, which argued for an industry-friendly, “light-handed [...] regulatory regime”. Purvis was also directly involved in the hedge-fund sector as Chair of the London-based recruiting arm of a Swiss company investing in hedge funds.

The Parliament clearly needs a strong ethics code to regulate against second jobs and other conflicts of interest. The ALTER-EU coalition, Transparency International and others have in the last weeks urged the European Parliament to “act to solve these problems once and for all”.

After leaving the Parliament in 2009, Purvis joined lobby consultancy Cabinet DN where he chairs the Financial Future Forum that is run from the consultancy’s Brussels offices. He is one of a growing number of MEPs and MEP assistants developing a second career in industry lobbying, often straight after leaving the Parliament. Other recent examples include Christian Rovsing (Conservatives, Denmark) who is also at Cabinet DN, Gary Titley (Labour, UK) joined lobby consultancy Hume Brophy; Glyn Ford (Labour, UK) now works for Gplus; Finnish MEP Piia-Noora Kauppi (Conservatives, Finland) went to the Federation of Finnish Financial Services and the European Banking Industry Committee (EBIC); former MEP Karin Riis-Jørgensen (Liberal Party, Denmark) now works for Kreab Gavin Anderson; and Jules Maaten (Liberal Party, the Netherlands) joined Public Matters.

Hubert Pirker, Strasser’s replacement following the scandal, is also a former MEP-turned-lobbyist, who will now return to the European Parliament. After leaving the Parliament in 2009, Pirker has run EU-Triconsult, a lobby consultancy, with offices in Vienna and Brussels.

This revolving door with the lobbying industry raises general questions about the ability of MEPs to defend the public interest while in office, but also is a source of possible conflicts of interest and corruption. Future employment contracts may have been agreed – formally or informally - while the MEP was still in office. Such offers could be a reward for favours delivered while in Parliament.

Clearly, rules are needed to prevent MEPs from going straight through the revolving door into industry.

Another area where the Parliament is far behind in regulating against conflicts of interest concerns the gifts and hospitality received from lobbyists.

In the wake of this scandal, many MEPs have expressed support for mandatory lobby transparency, but also other complementary proposals for improving transparency and ethics have been made. The Dutch MEP Dennis de Jong called for a ban on gifts worth more than 50 euro. Thijs Berman, another Dutch MEP, demanded that all MEPs should on a regular basis publish lists of meetings they have had with lobbyists. Swedish MEP Carl Schlyter proposed “a register of every email sent to an MEP with the intention of changing a policy or a law, allowing the public to see where amendments originate.”

Schlyter’s proposal refers to the very widespread practice of MEPs submitting amendments written by industry lobbyists, for free. Even when there is no payment, this is an appalling abuse of the democratic system which frequently results in the absurd situation that the majority of amendments for important EU laws voted on in the Parliament are written not by MEPs, but by lobbyists.

This happened with the rules on testing and approval of chemicals a few years ago, for the new rules for hedge funds in 2010, and with the regulation on speculation in government bonds just last month. Too many MEPs seem to assume that what’s good for big business lobbies is good for Europe as a whole - a flawed assumption that helps big business distort important EU legislation. There’s a lot at stake. An amendment approved can mean millions of euros of earnings or savings for a firm or industry. It can also mean thousands more people suffering from health problems caused by unregulated toxic chemicals or economic misery caused by inadequate rules on banks and investment firms.

Another aspect of this problem is that a large share of the 736 MEPs are involved in cross-party groups, used by industry as vehicles for lobbying. There are dozens of such “MEP-industry forums”, funded by and frequently run by Brussels-based lobby industry groups and consultancies. Examples include the Forum for the Automobile and Society (FAS), the European Parliamentary Financial Services Forum (EPFSF) and the European Energy Forum, to mention a few. These forums are currently not bound by transparency and ethics rules, in contrast with the officially recognised “Intergroups” for which some very limited rules exist.

A growing number of MEPs are speaking out against the excessive influence of big business lobbies and against the MEPs that enable industry to capture EU decision-making. The Parliament should assess the broader problems revealed by the cash-for-amendments scandal. It is high time for some critical self-reflection and for action to curb the power of corporate lobbyists over decision-making in the Parliament.


Monday, 14 March 2011

Industry inspired amendments defeated

On March 7, MEPs in the Parliament's economic affairs committee voted down the vast majority of the amendments inspired by the derivatives industry. This was thanks to the compromise amendments proposed by the rapporteur Pascal Canfin.

The MEPs proposed specific measures to stop the irresponsible practice of trading naked sovereign debt instruments (including CDS) opposing what was proposed by the Federation of European Securities Exchanges and other lobby groups linked with the derivatives industry.

The derivatives lobby may have had influential friends such as London conservative Syed Kamall and Swedish Liberal Olle Schmidt and others but they failed to delay the proposals to introduce sanctions against traders who fail to settle their payments - as had been proposed by the European Central Securities Depositories Association (ESCDA) and other financial lobby groups.

MEPs appear to be moving in the right direction, checking the excessive influence that has been exercised by the financial industry within the European institutions. This excessive influence resulted in the current inadequate regulatory and supervisory structure which brought us into the current economic crisis paid today by the vast majority of citizens but yet not by those who created it.

MEPs will have another opportunity to demonstrate their break with the culture of ''big finance knows best'' on April 20 when they will vote on the regulation of Over the Counter (OTC) derivatives - they must vote in the interests of the citizens they represent.


Thursday, 3 March 2011

Will MEPs vote for amendments written by the derivatives lobby?

On March 7, the European Parliament's economic affairs committee will vote on amendments to the Commission's proposals to regulate one of the most controversial derivative financial products, Credit Default Swaps.

The London MEP Syed Kamall (European Conservative and Reformist group) has tabled 14 amendments that are identical to those tabled by Swedish MEP Olle Schmidt (Alliance of Liberals and Democrats for Europe) or have the same result in the legislation and/or the same explanation text (ten identical and four almost identical ones). [1]

Several MEPs from the European People’s Party – Markus Ferber, Burkhard Balz, Alfredo Pallone, Herbert Dorfmann and Corien Wortmann-Kool – and Sharon Bowles MEP (Liberal), who chairs the committee, have also tabled identical amendments either with Schmidt or Kamall and sometimes with both of them.

So, eight MEPs from different political groups and different countries have tabled tens of identical amendments. This heavily suggests that these amendments have come from outside of the Parliament, presumably from lobbyists for the derivatives industry.

In at least two cases, CEO has obtained text written by financial lobby groups which is identical with the amendments submitted by the MEPs.

The MEPs who have tabled these industry amendments appear to be working with industry to defeat the efforts of the rapporteur, Pascal Canfin, - to strengthen the regulation on credit default swaps and ban naked trading in CDS. These highly speculative financial products are widely recognised as having a destabilising role in the continuing Eurozone crisis. The Commission's proposal already lacks teeth, and if approved the amendments would undermine attempts to introduce even basic regulation and transparency in the derivatives industry.

For example, the amendments include:

1. Traders should give less accurate information about their position in the market [2]

2. They oppose trading venues publishing a daily summary of the volume of transactions [3]

3. Preserve the irresponsible practice of trading non-existing sovereign debt instruments (including naked CDS). [4] This amendment was emailed to MEPs by the Federation of European Securities Exchanges (FESE) but may have come from a number of lobbies as the financial industry shares common views on this.

Explanation: in the Commission's proposal, it says that in order to trade a product the trader should have an arrangement with a third party under which that third party has confirmed that the share or sovereign debt instrument has been located and reserved for lending. The amendment, which is identical to text emailed to MEPs by industry and tabled by six MEPs, says that it would be sufficient if the trader has a 'reasonable expectation' that the product he is selling can be located and reserved.

4. Postpone the establishment of any sanctions against traders who fail to settle their payments.[5]Identical text to these amendments has been sent by email to the MEPs by the European Central Securities Depositories Association (ESCDA). It may have come from some other financial lobby group, since many share these views. Schmidt’s office claims it didn’t receive this text from ESCDA.

Sharon Bowles explained that amendment 402 makes it clear that instead of deciding now on the sanctions, the EU should wait the advice of an industry expert group formed by the European Commission: the Harmonisation of Settlement Cycles Working Group (HSCWG which is a sub-group of the industry dominated CESAME 2). This matches with the position of the Federation European Securities Exchanges. This working party focuses on the competitiveness of the derivatives industry.

5. Further limit the scope for banning short selling as already provided for in only exceptional circumstances by the Commission’s proposal. [6]

Explanation: if this amendment goes through it will not be all naked CDS that will be prohibited in exceptional circumstances but only some of them. The justification of the amendment submitted by the MEPs say clearly: ''Powers to ban short selling in exceptional circumstances should be restricted to a defined set of financial instruments and to defined types of transactions in order to allow market participants to plan properly for the rapid implementation of emergency measures''

6. To introduce an automatic expiry for any ban of three months. This is how the amendment text reads: ''If the measure is not renewed after that three-month period, it shall automatically expire''[7]

7. Olle Schmidt goes as far as proposing a 20-year confidentiality clause for business or operational conditions [8]

You can find all the amendments here.

Olle Schmidt’s office told CEO that Schmidt had not met with ECSDA and that the amendments were not proposed by ECSDA. His assistant said he did meet with stakeholders and also the Swedish government.

“Mr Schmidt or me as his assistant did not meet ECSDA. Those amendments that you refer to were not proposed by ECSDA to mr Schmidt.’’ [9] He nevertheless failed to specify their origin saying that he “will not comment on specific amendments’’. On article 13 for instance he “has the same view as the Swedish government’’ which happens to agree with the derivatives lobby. [10]

MEP Schmidt’s office didn’t give a convincing explanation as to why 14 almost identical amendments were tabled both by Schmidt and Kamall. He only said that they had cooperated with ECR also among other political groups to prepare the amendments and that in some cases like Articles 6 and 12, ‘Mr Schmidt shares the same ideological point of view with Mr Kamall’.

They both seem to share the same ideological views as the Federation of European Securities Exchanges – which has the financial interests of its members to defend.

Syed Kamall declined to comment.

Last year a cross-party alliance of around 80 MEPs took an initiative to counter the ‘threat to democracy’ posed by the unopposed domination of financial lobbyists in the Parliament. Their colleagues in the Parliament should support them rather than siding with the stooges for the greedy and self-serving derivatives industry and vote down these amendments.

[1]Identical amendments Kamall - Schmidt: 1) 140 - 141, 2) 156 - 157, 3) 248 - 249, 4) 267 - 270, 5) 432 - 433, 6) 453 - 454, 7) 455 - 456, 8) 457 - 458, 9) 467 -468, 10) 481 - 482. Almost identical text with the same justification and / or the same result in the legislation: 11) 188 - 189 (fines or penalties not to be included in this legislative piece), 12) 337 - 338 (sovereign debt instruments out of the scope), 13) 441 - 442 (disclosure restricted to shares), 14) 485 - 486 (identical justification)
[2]Amendments 248, 249 by Kamall and Schmidt in Article 3
[3]Amendments 267 - 270 by Kamall, Schmidt, Ferber, Bowles and Wortmann-Kool in Article 6
[4]Amendments 351 - 355 by Kamall, Schmidt, Bowles, Pallone, Dorfmann and Woortman in Article 12
[5]Amendments 188, 189 by Kamall, Schmidt, Bowles in Recital 16, amendments 375 – 378 in Article 13 by Kamall, Ferber and Balz and amendments 402, 403 by Schmidt and Bowles
[6]Amendments 453, 454 by Kamall and Schmidt in Article 17
[7]Amendments 485 – 486 by Kamall and Schmidt in Article 20
[8]Amendment 502 in Article 29
[9]Email from Olle Schmidt's office, 28/02/2011 14:59
[10]Email from Olle Schmidt's office, 04/02/2011 12:48

(this posting has been updated on 07/03/2011)