Conflicts of Interest

By Christoph Schult and Christoph Pauly

Senior European Commission officials have a penchant for changing sides when they join the private sector. They take up positions with Chinese companies, cigarette manufacturers or PR firms — and potential conflicts of interest are often ignored.

When Karel De Gucht came into office, he suspected that he would be inundated with lobbyists. “It’s a fact of life that there are a lot of lobbyists; it’s because you are important that there are a lot of lobbies,” the European Union Trade Commissioner-elect said before the European Parliament at the time. For that reason, the Belgian politician noted, he would counter “third-party interests where these have undue influence,” adding that he intended to defend his “independence.”

At the moment, Chinese companies are paying especially close attention to De Gucht. His decision to impose punitive tariffs on Chinese solar-panel manufacturers in a dispute over price dumping has made it clear to the Chinese that De Gucht meant what he said about his independence. He has been viewed as an enemy in China since then. A Chinese newspaper described him as “stubborn.”

The Chinese have a substantial interest in gaining early access to information about upcoming decisions at the European Commission — and they tend to recruit former Commission officials to achieve their goals. But the Chinese aren’t the only ones. PR firms and international corporations are also wooing the former officials, who come with valuable networks.

Outgoing EU officials must receive official approval for consulting activities. There is a separate reporting system designed specifically for former officials who have switched to the private sector. However, internal documents reveal that the EU often turns a blind eye to potential conflicts of interest.

Allegations of Espionage

Serge Abou is a case in point when it comes to multiple conflicts of interest. The Frenchman served the EU in key positions for more than three decades. He was director-general for External Relations and director for Trade Defence Policy, then spent the last six years of his career as the EU ambassador in Beijing.

After leaving EU service, Abou wanted to take a job with Huawei, China’s biggest telecommunications company. In July 2011, shortly after his retirement from the EU, Huawei representatives approached Abou at a conference in Paris. The Chinese were already concerned about Trade Commissioner De Gucht’s investigations at the time. Huawei had also encountered serious problems in the United States, where there were allegations of espionage.

Despite the obvious conflict of interest between the EU and Huawei, former Ambassador Abou was given permission to work for the Chinese company, although he was required to wait two years before beginning his new consulting job. He was also told, in writing, “to refrain from engaging in any lobbying activity in relation to the Commission” and “not to represent Huawei in contacts with the Commission.” But how can anyone verify whether Abou, with his long list of contacts, may have made the occasional call to an old friend in the Directorate General for Trade?

Abou could not be reached for comment. The head of Huawei’s Brussels office, Leo Sun, stated that Abou provides Huawei with “general strategic advice on global economical and political affairs,” and insisted that, in doing so, Abou adheres strictly to European Commission rules.

‘I’m In Good Company’

Internal correspondence shows how little confidence the Commission itself has in such formal rules. For instance, the top official at the Directorate General for Trade rejected the deal. In an email to the Directorate General on July 26, 2012, Director-General Jean-Luc Demarty wrote that he was adhering to his reservations cited in his letters of June 11 and June 3, 2012. He had “continuing doubts about the suitability of this approval,” Demarty wrote.

In late October, an employee in the trade division raised concerns about Huawei’s increased lobbying activities, writing: “They had meetings with several European governments, commissioners and members of the European Parliament.” According to the employee, the Chinese lobbyists had even invited former European Trade Commissioner Danuta Hübner to Hauwei’s corporate headquarters in Shenzhen for a “private visit.” Abou himself noted, in reference to other EU officials already working for Huawei, including a former chief of a European commissioner’s cabinet: “So I’m in good company.”

At the trade division they are familiar with the temptations. In 2008, German EU official Fritz-Harald Wenig, a department head in the Directorate General for Trade at the time, was allegedly offered €100,000 ($135,000) to provide lobbyists disguised as Chinese journalists confidential information about trade tariffs. Wenig was fired, but he is challenging the legality of his dismissal in court.

Last May, De Gucht decided to launch anti-price dumping proceedings against Huawei and another company. The Chinese deny the allegations, which concern billions in annual imports into the EU. But it is the first time a case has been opened without a formal complaint having been filed by a European company or industry association affected by price dumping — an indication of how strong the suspicions are against the Chinese company.

Another prominent move to the private sector is currently causing turmoil behind the scenes. The official in question is Director-General for Energy Philip Lowe. The British native is retiring from service at the end of the year, when he plans to switch sides. As of Jan. 1, 2014, Lowe will be one of five non-executive directors of the new British Competition and Markets Authority (CMA) Board.

Voicing No Concerns

His request passed through the relevant committees without any problems. The fact that Lowe is not switching to the private sector but to a government agency doesn’t make the case any less controversial. There are many instances in which the government agencies in a member state hold legal opinions different from those of the European Commission. The British, in particular, are always looking for ways to weaken EU institutions. In addition, Lowe was Director-General of Competition from 2002 to 2010. In that position, he was responsible for many sanctions on member states and companies for violation of EU competition laws. Lowe himself noted in his request that he had been in frequent contact with various British competition authorities in his earlier position.

But the Directorate General, which was charged with issuing the approval, did not see this as a conflict of interest. In a letter to Lowe, Director-General for Personnel Irene Souka wrote that she was pleased to inform him that the relevant agency had granted him its approval to perform the activities specified in his request. The cabinet of Energy Commissioner Günther Oettinger also voiced no concerns.

The European Commission was also unconcerned over the fact that Lowe will begin working for the British agency even before he leaves his current position. Requests for approval of such additional work must be submitted at least two months in advance, but Lowe only wrote in July that he would be involved in setting up the new British agency as of the end of July. He added that he regretted that he was unable to comply with the two-month period of notice. He is also receiving a handsome fee of €4,500 for his work for the British agency through the end of the year — in addition to the monthly base salary of €19,000 he earns as Director-General.

“The European Commission lacks the sensitivity and will to recognize the conflicts of interest in such revolving-door moves into industry,” says Olivier Hoedeman of Corporate Europe Observatory (CEO), an anti-lobbying organization that has collected information on similar cases. Hoedeman, who is from the Netherlands, filed a formal complaint with the European Ombudsman last year on behalf of CEO, together with Greenpeace, LobbyControl and Spinwatch. They contend that the European Commission is applying its rules “inadequately.”

‘We Have a Good System’

According to the complaint, there have been at least 343 cases in four years in which the Commission has examined possible conflicts of interest. But in only one case was an outgoing Commission employee prohibited from taking a job in the private sector, while conditions were imposed in four cases.

 

The fact that so few cases end in sanctions can be seen as evidence “that we have a good system,” says a spokesman for the European commissioner in charge of personnel. According to the spokesman, it is becoming increasingly rare for some high-ranking employees to forget to mention, upon leaving their EU positions, potential conflicts of interest associated with their future jobs. “Everyone is required to attend an ethics course before leaving the European Commission.”

Emily O’Reilly, the new Ombudsman as of Oct. 1 and the first woman in the position, is significantly more skeptical. “The European Commission must set the gold standard in this area,” says O’Reilly, who is from Ireland. Many member states are significantly more advanced when it comes to handling conflicts of interest among their employees, she adds.

For 10 years the purposeful O’Reilly ran the complaint office for Irish citizens. Now she intends to turn the institution, often derided in Brussels for its lack of power, into a serious supervisory authority for EU agencies. O’Reilly believes that it is important to pay close attention to how these agencies handle a large number of conflicts of interest. She expects to be inundated with work next year.

Stricter Rules From January

The tenure of the current European Commission ends in the summer of 2014, and many employees are already looking for a new job. “How can you ensure that the current decisions of EU employees do not already depend on job offers from their future employers?” she asks, with a note of concern in her voice.

In all likelihood, there will be a stricter rule for the 32,000 employees of the European Commission as of Jan. 1, 2014. For instance, senior management personnel will generally be subject to a 12-month waiting period before they are allowed to begin a new job. O’Reilly welcomes the more clearly worded rules, but also notes that loopholes still exist. Employees who agree not to engage in lobbying activities with their former co-workers are not subject to the waiting period.

The European Commission shies away from clear rules. Sometimes, Commission officials note, a lifelong ban on performing certain activities is the right approach. But employees must also be given the chance to change career paths. Those who crack down excessively are likely to lose court challenges against such professional bans.

While this is all correct, cases involving obvious conflicts of interest come up again and again, and there is a remarkable lack of awareness of the problem, especially among the executives working around European Commission President José Manuel Barroso.

Legal Matters Not Lobbying

Michel Petite left his post as director general of the legal service at the European Commission in late 2007. One of the deals he had negotiated in that position was a major agreement with American tobacco company Philip Morris. After leaving the EU, the Frenchman became a specialist for EU affairs at the Clifford Chance law firm in Paris. Philip Morris is a very good client of Clifford Chance, and Petite even represented the company in a Norwegian court.

In 2011 and 2012, the Frenchman met with his former colleagues from the EU legal service to discuss the controversial EU tobacco guideline, which has alarmed the cigarette companies. They fear, among other things, that large warning labels will deter people from smoking and that harmful ingredients in cigarettes will be banned.

The European Commission justified Petite’s visits by saying that they involved legal matters rather than lobbying activity. It also argued that he had made it completely clear that his new employer also worked for Philip Morris.

Petite was apparently also helping out the Swedish tobacco firm Swedish Match when the company tried to spread damaging information about then EU Health Commissioner John Dalli.

Not a ‘Credible Advisor to the Commission’

The head of the legal department at Swedish Match told the European Anti-Fraud Office (OLAF) that he had involved Petite in the matter, and that Petite had then called Catherine Day, the secretary-general of the European Commission and a former colleague. Day ordered an OLAF investigation against Dalli that led to the commissioner’s resignation.

Now the ombudsman is addressing the Petite case. Ironically, Petite is a member of the Ethics Committee, which is charged with reviewing revolving door cases of EU commissioners. Petite, an attorney, is apparently so valuable in this position that, in December 2012, Barroso managed to extend Petite’s contract as a member of the committee for another three years. He will be responsible for monitoring the situation when some of the commissioners start looking for new jobs next year.

A former Commission official with close ties to the cigarette industry is not a “credible advisor to the Commission on revolving door cases and other ethics issues,” wrote Nina Katzemich of LobbyControl in a complaint to the ombudsman’s office.

O’Reilly plans to rule on the case this fall. It could prove to be an early determination on how seriously she is taken in Brussels.

Translated from the German by Christopher Sultan