Commercial Regulations of Companies Owning Local Governments (HR0029)

STRENGTHENING TRANSPARENCY AND ACCOUNTABILITY AT THE LEVEL OF
COMMERCIAL COMPANIES IN MAJORITY OWNERSHIP OF UNITS OF LOCAL AND REGIONAL SELFGOVERNMENT
Implementation of the measure is under way and will be conducted until 31 December 2020
Leader of the measure MINISTRY OF JUSTICE
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GOVERNMENT OFFICE FOR COOPERATION WITH NGOs
Description of the measure
Which public issue does the measure address? A review of the current state of affairs in local level government has
detected the existence of real risks which may lead to corruption in work
and asset management, that is, commercial companies in the ownership
of units of local and regional self-government.
The application of the Anti-Corruption Programme for commercial
companies in the ownership of units of local and regional self-government
attempts to strengthen transparency and accountability, and to control
risks in managing the assets of units of local and regional self-government.
Among other things, in the reports on financing programmes and projects
by NGOs from public funds, which are prepared by the Government
Office for Cooperation with NGOs, there is information on financing
NGOs from the revenues of public commercial companies. In this regard,
the Government Office for Cooperation with NGOs has established the
need to conduct training which would cover public commercial
companies and ensure that the distribution of funds to NGOs is carried
out in accordance with positive regulations.
What does the measure include? The measure enables the further implementation of anti-corruption
mechanisms, with the aim of ensuring the more efficient management of
assets held by units of local and regional self-government.
The creation and publication of a unified list of commercial companies in
the ownership of units of local and regional self-government on the website
of the Ministry of Justice, with the publication of information on the
members of management and supervisory boards, has fulfilled one of the
prerequisites for improving the supervision of commercial companies in
majority ownership of units of local and regional self-government, with the
aim of increasing transparency and managing corruption risks in this area.
The creation of this list is a prerequisite for the creation and efficient
implementation of the Anti-Corruption Programme for commercial
companies in majority ownership of units of local and regional selfgovernment for 2019 to 2020. In cooperation with co-leaders, an AntiCorruption Programme for commercial companies in the ownership of
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local level authorities will be drawn up, and its application will attempt to
set up efficient mechanisms to suppress corruption in such companies,
with the aim of promoting a comprehensive policy of prevention, efficient
reporting mechanisms, and high standards of accountability.
In addition, the adoption of the Instructions for keeping and publishing the
List of commercial companies in majority ownership of units of local and
regional self-government means that all such units will be instructed to
publish regularly on their own websites all information on commercial
companies in which they have majority ownership, and any changes in
their work (for example, structures of ownership, members of management
and supervisory boards). This must be done in an easily searchable,
machine-readable form, with the emphasis on openness and suitability for
reuse (in accordance with the Act on the Right to Access Information). This
will enable constant updating to take place.
The measure also includes implementing a training programme for
commercial companies in the ownership of the Republic of Croatia or one
or more units of local and regional self-government on the criteria and
standards for awarding donations and sponsorships to NGOs.
How does the measure contribute to resolving the public
issue?
The adoption and implementation of the Anti-Corruption Programme for
commercial companies in the ownership of units of local and regional selfgovernment attempts to set up efficient mechanisms for suppressing
corruption in companies in the ownership of local authorities, with the aim
of promoting a comprehensive policy of prevention, efficient reporting
mechanisms and high standards of company accountability, thus
contributing to overall business efficiency.
The competent bodies of companies are instructed to work intensively on
developing appropriate management practices, abiding by the main
elements of the fight against corruption, and to be proactive in achieving
the priority goals of anti-corruption policies, particularly in relation to
achieving the goals of strengthening integrity, accountability and
transparency in their work.
It is expected that the implementation of training programmes for
commercial companies in the ownership of the Republic of Croatia or one
or more units of local and regional self-government on the criteria and
standards for awarding donations and sponsorships to NGOs will
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improve the transparency of these processes, and raise their quality in
general, aligning them with positive regulations in this area.
Why is this measure relevant to the values of the Open
Government Partnership?
The implementation of the measure contributes to strengthening
transparency and access to information held by public authorities at the
local level and to improving the quality of published information.
At the same time, implementation enables company accountability to be
strengthened, with the more efficient management of public resources
and the increased integrity of public services, that is, public and civil
servants.
Additional information No additional resources are required for the implementation of the
measure.
The measure is in accordance with the following documents:
- Action Plan for 2017 and 2018 accompanying the Anti-Corruption
Strategy 2015- 2020
- Anti-Corruption Strategy 2015-2020

4. Transparency and Accountability of Commercial Companies with Majority Ownership of Local and Regional Self-Government

Language of the commitment as it appears in the action plan:

"Measure 4. Strengthening Transparency and Accountability at the Level of Commercial Companies with Majority Ownership of Units of Local and Regional Self-Government" ^[27]

"The adoption and implementation of the Anti-Corruption Programme for commercial companies in the ownership of units of local and regional self-government attempts to set up efficient mechanisms for suppressing corruption in companies in the ownership of local authorities, with the aim of promoting a comprehensive policy of prevention, efficient reporting mechanisms and high standards of company accountability, thus contributing to overall business efficiency. (…) No additional resources are required for the implementation of the measure."

Milestones:

4.1. Production and implementation of the Anti-Corruption Programme for commercial companies in the ownership of units of local and regional self-government 2019-2020

• Anti-Corruption Programme produced for commercial companies in ownership of local authorities
• Results of the application of the Anti-Corruption Programme (reports on the implementation of the Anti-Corruption Programme)

4.2. Implementation of the training programme for commercial companies in the ownership of the Republic of Croatia or one or more units of local and regional self-government on the criteria and standards for awarding donations and sponsorships to NGOs

• A minimum of two training workshops held annually

Start date: Underway

End date: 31 December 2020

Context and Objectives

Learning from drafting, adopting, and implementing the "Anti-Corruption Program for Commercial Companies with Majority Ownership by the State for 2010-2012," [28] as well as drafting the "Anti-Corruption Program for Commercial Companies with Majority Ownership of the State from 2019-2020" [29] the Ministry of Justice decided to expand its anticorruption activities to commercial companies which have majority ownership by local and regional self-government units (Milestone 4.1). The strategy planned in the commitment would adhere to recommendations of the EU Anti-Corruption Report from February 2014, [30] which highlighted the need to prevent corruption in public and publicly owned companies, particularly through effective action plans and reporting mechanisms.

Croatia’s Anti-Corruption Program for Commercial Companies with Majority Ownership of the State from 2019-2020 [31] consists of three broad goals:

1. Increase integrity, accountability, and transparency in the operations of majority state-owned companies (stronger internal and external controls, clear rules on appointing management and supervisory board members, and stronger mechanisms for managing conflicts of interest);
2. Strengthen anti-corruption mechanisms (proactive online publishing of information on operations of state-owned companies, a code of ethics for stronger employee integrity and management structures, appointing ethics commissioners to receive complaints from employees and citizens regarding unethical or corrupt employees, and promoting ethical treatment for employee relations and relations with citizens and service users); and
3. Establish a system to protect persons reporting illegal or abnormal operations and strengthen employee competences.

The commitment’s envisioned training program (Milestone 4.2) is already being implemented for state-owned commercial companies and this commitment will expand it to companies owned by local and regional authorities. The government will conduct two annual trainings for companies on ethical donations to NGOs. According to government representatives, [32] it is important that the Ministry of Justice, as the lead institution, has sufficient assistance from its co-leaders as the Information Commissioner’s Office noticed a serious problem with commercial companies concealing important information from local governments, despite being publicly owned.

As the anti-corruption program has already been applied to nationally-owned companies, Milestone 4.1 should be easily implemented. Although agreeing to this, a CSO representative [33] noted the entire commitment is "soft" and not especially important to leading government institutions. For greater impact, both national and subnational state-owned companies must have effective accountability and integrity mechanisms (e.g., codes of conduct, whistleblower and complaint policies, internal and external audits, and a robust disciplinary regime).

Next steps

The IRM researcher believes the responsible authorities should consider the following:

• During implementation, the Ministry of Justice should include all stakeholders in drafting the envisaged strategic document (e.g., representatives of local and regional governments, public companies, the Croatian Chamber of Commerce, unions, anti-corruption CSOs, and experts);
• Increase the number of trainings to adequately cover the numerous local governments and publicly owned companies;
• Consider more impactful activities and broaden government intervention in companies owned by regional governments (e.g., legislative changes that introduce codes of conduct, whistleblower policies and complaints mechanisms, internal and external audits, and a robust disciplinary regime); and
• Ensure interventions follow international standards such as the OECD’sAnti-Corruption and Integrity Guidelines for State-Owned Enterprises or Transparency International’s Anti-Corruption Principles for State-Owned Enterprises (2017).