The underground economy: a threat to democracy, development and the rule of law
- Parliamentary Assembly
- Text adopted by
the Standing Committee, acting on behalf of the Assembly, on 25
November 2011 (see Doc.
12700, report of the Committee on Economic Affairs and
Development, rapporteur: Mr Pleskachevskiy). See also Recommendation 1988 (2011).
1 There is a growing concern that
the underground economy, also referred to as the informal, shadow
or grey economy, represents a large and increasing share of the
overall economic activity in Europe and the world. For decades policy
makers’ attention focused on economic development priorities and
the immediate serious threats to good governance or national security
stemming from economic crime or the “black economy”. Council of
Europe member states have directed their action on the basis of
Committee of Ministers Recommendation No. R (81) 12 on economic
crime, the relevant conventions and their additional protocols, collaboration
with international partners and the work of specialised intergovernmental
committees. Yet the consideration of wider problems relating to
the underground economy and its effects on society has been insufficient.
This concerns, in particular, undeclared work and the unregulated
use of assets through offshore financial centres.
2 The Parliamentary Assembly notes that, according to some estimates,
the size of the underground economy ranges from under 10% of Gross
Domestic Product (GDP) in countries such as Austria and Switzerland,
to about 25% in Greece, 33% in Turkey, 37% in Bulgaria, and around
40% in the Baltic states, to over 60% in the South Caucasus countries.
The “new democracies” of central and eastern Europe – where the rule
of law is still fragile and vested interest groups are firmly rooted
– are particularly affected. The evolving structure of the world
economy, the geopolitical changes following the fall of the Berlin
Wall (globalisation, spread of cyber-technologies, opening of borders,
proliferation of free-trade zones, etc.) and, last but not least, the
global economic crisis, have all together fuelled the growth of
the informal economy.
3 The Assembly considers that both the underground economy and
economic crime significantly erode state authority and the capacity
for good governance which are essential for fostering democracy,
development and the rule of law. The shadow economy and economic
crime deprive state budgets of substantial amounts of tax revenue,
distort competition in regular markets, flout citizens’ socio-economic
rights, slow down economic progress, abuse public welfare systems
and propagate lawlessness. At the same time, they draw attention
to problems with official laws, rules, regulations and practice,
as well as shortcomings in law enforcement. Such problems include
legal loopholes, red tape, excessive regulation or tax burden and
a lack of effective oversight and control.
4 Together with its international partners, such as the Organisation
for Economic Co-operation and Development (OECD), the World Bank,
the European Union, the European Bank for Reconstruction and Development
(EBRD), the United Nations, Europol and Eurojust, the Council of
Europe has shaped policies, legal instruments, monitoring mechanisms,
co-operation programmes and projects for targeting corruption, cybercrime,
money laundering, tax evasion, terrorist financing, confiscation
of criminal assets, insider trading, environmental crime and trafficking
in human beings. However, it should strengthen its efforts to address
the problem of undeclared work, notably in co-operation with the
International Labour Organization (ILO) and the International Organization
for Migration (IOM), and to study the activities of the offshore
centres as financial intermediaries. Furthermore, considering that
the last Council of Europe study on the situation of organised crime
was published in 2005, it seems necessary to prepare a new study.
5 The Assembly appreciates that the priorities for 2012-2013
put forward by the Council of Europe Secretary General lay emphasis
on threats to the rule of law, in particular the various kinds of
economic crime, including new forms of criminality. The Assembly
trusts that these priority activities and any new action relating to
the underground economy, as suggested in this resolution, will receive
adequate budgetary support from the governments of member states.
6 The Assembly also welcomes the proposals by the Council of
Europe Secretary General for a critical review of the Organisation’s
conventions. It is convinced that the Organisation should use this
process to facilitate accession by the member states, the European
Union and non-member countries to relevant conventions which are
essential for fostering co-operation in combating the underground
economy and economic crime.
7 The Assembly welcomes the recent adoption of the European
Convention on Counterfeiting of Medical Products and Similar Crimes
involving Threats to Public Health (Medicrime Convention, CETS No.
211) and the intention of the European Union to become party to
this convention. It believes that the convention should be promoted
without any further delay.
8 In this context, the Assembly recalls its Recommendation 1793 (2007)
on the need for a Council of Europe convention on the suppression
of counterfeiting and trafficking in counterfeit goods, in which
it proposed to consider preparing a legal instrument that would
cover a full range of consumer goods which, if counterfeited or
adulterated, pose serious risks to the lives and health of Europeans.
Trafficking of counterfeit goods continues to escalate across Europe
and the implementation of the Medicrime Convention will require reliable
data. An observatory could therefore be set up under the aegis of
the Council of Europe, possibly in co-operation with the European
Union, to gather data on cases of fraudulent goods which put public
health at risk. This measure would facilitate a decision on the
need for an additional protocol to the Medicrime Convention in order
to widen its coverage to all dangerous goods.
9 The Assembly is convinced that pan-European co-operation on
preventing and combating trafficking in human beings can only be
effective if the Council of Europe and European Union combine their
efforts and means, in particular with a view to strengthening the
monitoring mechanism of the Council of Europe Convention on Action
against Trafficking in Human Beings (CETS No. 197) and synergies
with other institutional actors at national, regional, European
and international levels.
10 Enhanced transparency in relations between decision makers,
economic players and citizens is essential for better governance.
The Assembly notes a positive first reaction of the Committee of
Ministers, on the basis of opinions from the Group of States against
Corruption (GRECO) and the Conference of International Non-Governmental
Organisations (INGOs), to its Recommendation 1908 (2010) on lobbying
in a democratic society (European Code of good conduct on lobbying)
and trusts that progress will be made rapidly towards the drawing
up of such a code.
11 Moreover, the Assembly welcomes the intention of GRECO to
use its forthcoming 4th Evaluation Round on “Corruption prevention
in parliamentary assemblies, the judiciary and among other actors
of the pre-judicial and judicial process” to assess the existing
standards of conduct for parliamentarians with regard to lobbyists and
lobbying. It believes that it would be appropriate to widen the
scope of the evaluation to also cover the executive branch of governance.
The Assembly is convinced that curbing underground economic
activities, in particular economic crime, is essential to ensuring
the smooth functioning of democracy, the competitiveness and strong
performance of national economies, more adequate protection of citizens'
socio-economic rights and the honouring of commitments to foster
the rule of law. It therefore calls on member states to:
12.1 carry out national audits of
their economic systems with a view to evaluating the extent of underground
economic activities and their interface with the formal economy;
12.2 assess the weight of their regulatory systems related
to taxation, licensing, labour, environment, health and safety,
consumer protection and intellectual and industrial property rights,
with a view to determining whether these could be streamlined and
the cost of compliance lowered;
12.3 work towards the harmonisation of the definition of the
underground economy and support the Council of Europe efforts in
12.4 study the impact of migrant labour, in particular the
trend of “low-cost” labour, on national welfare systems and corporate
compliance with core labour standards;
12.5 put in place specific assistance in favour of better integration
of vulnerable groups (including minorities, refugees, asylum seekers,
displaced persons and Roma communities) through targeted educational
schemes, employability training, self-employment programmes and
measures to improve access to public services and decent housing;
12.6 strengthen the electronic monitoring and active surveillance
of money flows by banks and financial institutions;
12.7 tighten the rules regarding the use of cash transactions
and increase penalties for unrecorded or undeclared cash receipts;
12.8 improve liaison, information exchange, sharing of best
practice and co-operation between monitoring, investigating and
prosecuting bodies at local, regional, national and international
12.9 facilitate the work of national economic intelligence
agencies by strengthening their surveillance and investigative powers,
as well as their human and financial resources;
12.10 increase the scrutiny of business transactions involving
the use of the services of offshore financial centres;
12.11 support G20 efforts towards improving global rules for
the regulation of financial markets, particularly in respect of
hedge fund activities, and increased transparency of financial instruments;
review, clarify and, where necessary, strengthen the national
legislative provisions for:
12.12.1 regulating lobbying activities
and the work of professional associations;
12.12.2 ensuring transparency in public procurement, administration
of state property and privatisation;
12.12.3 enhancing the responsibility of business entities, regulators
and control institutions for the disclosure of truthful information;
12.12.4 optimising personal data protection;
12.12.5 improving domestic controls for intercepting counterfeit
12.13 promote whistle-blowing and ensure adequate witness protection.
13 Finally, the Assembly invites national parliaments to ensure
continued monitoring of domestic policies and action for tackling
the underground economy and economic crime, notably as a follow-up
to measures proposed in this resolution.