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The East: Good Accountancy Provides A Weapon Against Economic Corruption

Prague, 29 April 1998 (RFE/RL) -- A prominent British accountant says economic development in the former communist states is being hindered by a circle of corruption which will be very difficult to break.

The President of the Institute of Chartered Accountants in England and Wales, Christopher Laine says that it's absolutely essential for transition states to establish or re-establish the accountancy profession with international standards. He says it's particularly important that there continues to be rapid improvement among countries of Central and East Europe which are moving towards membership of the European Union.

Speaking in an interview from London, Laine told RFE/RL that organized crime has had an "open opportunity" in the former communist states, where the collapse of the old system often left a void, and space for criminals to step into. He said poor quality accounting systems play into the hands of such criminal elements, because the presence of trustworthy accountants is a key control mechanism within an economy.

The problem has been made worse, he says, because the old central planning system left behind a mindset among people which fostered corruption.

Despite the difficulties, he says progress is being made. The countries which have gone farthest in setting up good accounting practices are the five front-runners for EU membership -- Estonia, Slovenia, Poland, Hungary and the Czech Republic. To these Laine adds Romania, which he says has made good efforts to rehabilitate its accountancy profession. He says that prospective EU membership generally is a powerful inducement to improve the situation.

"The desire of these countries is to join an economic structure such as the EU, where the entry requirements are going to be quite demanding, and where clearly entry will not be granted until there is both a clear government policy to set its face against this sort of thing, and some means of dealing with it. If they want to join what they view as an attractive economic entity, namely the EU, then it is a challenge to government to establish ways of doing business by broad criteria that would be acceptable".

Laine says he wants to emphasize that in talking about fraud and corruption, he is not trying to "throw stones" at the east. He notes that both West Europe and North America also have to wage a "never-ending" fight against corruption, and have built up their present system of public probity and rule of law slowly over centuries.

He notes that in the East in any event traditions can be very different from those of the West, and criminality has sometimes been able to build a base. He mentions Russia, where ruthless and imaginative criminals have built a very strong Mafia.

He said the problems are further compounded in areas where corruption is endemic, is part of the way to get things done.

"If joining in the system of corruption is the only way an individual can obtain a reasonable wage, and if the government is only able to pay extremely modest rewards to those who wish to counter corruption, then it is very difficult to see how people can stay for long outside the web of corruption. In the long run you can't expect people to work for very little, in large numbers, in order to follow the "paths or righteousness". it will need real imagination and drive from the countries concerned to reverse that trend".

Laine goes on to say that the situation represents a vicious circle, and that therefore it is difficult to be optimistic in the short run. There are no easy remedies, he says.

Laine says that its crucially important for Western accountants to provide help to colleagues in the transition countries. He notes that a number of easterners are already associate members of the Brussels-based European Accounting Federation, and others are seeking that status. He says that members of his own institute in Britain are also active in the East.

He says the help need not be particularly in money terms, but rather through the provision of access to accountants in the west who can provide professional and moral support.