Special Report: How lobbyists rewrite Europe's laws

Reuters News
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Posted: Mar 21, 2011 11:36 AM

By John O'Donnell

BRUSSELS (Reuters) - Few people have taken Klaus-Heiner Lehne up on the invitation posted on his website to find out more about "Europe, politics and me". If they did, they might be surprised how much the 53-year-old German fits into his working week.

At home in Duesseldorf, Lehne is a partner at law firm Taylor Wessing. Every Friday he works at the firm's offices, minutes away from the designer shops of the city's leafy Koenigsallee. Lehne's firm advises the business elite of Germany's most economically powerful state, once home to coal and steel barons and now to many of the country's biggest industrial companies.

For the rest of the week, you'll find him in Brussels, where he is a member of the European Parliament (MEP). There, he co-writes business laws, including, in the past, EU rules for company mergers and takeovers, corporate accounting, and investor rights.

A conflict of interest? Lehne doesn't see any.

"It would be a lie to say that I don't profit professionally from the fact that I have been active in politics over a long time period," he concedes. But he defends his dual role and plays down the income from law. "It strengthens independence," he says, by securing him a job after politics.

Lehne's situation is far from unique. Many of the European Parliament's 736 members keep close ties or even employment with industry during their five-year stint as legislators.

Take Edward Scicluna, who sits on the parliament's Economic and Monetary Affairs Committee. He co-wrote laws for hedge funds last year. He is also the chairman of two investment funds run by British bank HSBC. Elmar Brok, a parliamentarian who negotiated the main law governing the EU, the Lisbon Treaty, also works for Bertelsmann. Its late German owner and Brok's one-time paymaster, Reinhard Mohn, aspired to shape the so-called European project.

Both defend their dual roles. Neither feels compromised.

"There are some members of parliament who have far, far, far higher income from side jobs," says German MEP Anja Weisgerber, who also has a second job, with corporate lawyers GSK Stockmann.

GSK, where Weisgerber works alongside Theo Waigel, the former German finance minister known as father of the euro currency project, is explicit about the benefits to clients. "We follow European Union law-making with special interest," it writes on its website. "Many of our professionals have, because of their involvement in Europe's bodies and institutions, a personal stake in the successful development of ... financial markets."

For Brussels insiders, this is normal. But Bruce Stokes, who has studied the growth in EU lobbying for the German Marshall Fund, a Washington-based think tank, says it surpasses anything he has seen in Washington, itself famed for the reach and power of industry to influence policy.

"I was shocked when I found out about MEPs holding down second jobs," says Stokes. "I cannot think of any comparable conflict of interest in Washington."

The influence of lobbyists covers all industries, but at the present -- as Europe tries to push through bank reforms in the wake of an economic crisis that has cost 4.6 trillion euros ($6.5 trillion) in public aid and guarantees -- the financial sector's voice is particularly keen to be heard. Is it time the close relationship between MEPs and big business came under increased scrutiny?

Stokes thinks so. "Faith in the democratic system depends on the perception that it's fair," he says. "Does it smell fair? As an American, no. I think it smells to high heaven."

INTO VACCUUM, LOBBYISTS RUSH

Many of Europe's citizens know their parliament only as the inventor of rules dictating the size of bananas or width of tractor tires. Few are aware it now decides most laws affecting business as well as a range of economic reforms.

Public interest in the powerful institution has never been high and may be waning. Turnout at European elections dropped over the last decade, watered down by new EU entrants like Poland and Slovakia where fewer than three in 10 cast their vote. Even in countries like Germany, one of the EU's founding members and its biggest state, turnout slid to a modest 43 percent at elections in 2009 from 45 percent 10 years earlier.

Even some MEPs seem uninterested in the club they've joined. While many are active, others are rarely seen in the warren of corridors that lead to their cramped offices, most equipped with a sofa bed, shower and small side-room for their assistants.

Romanian soccer tycoon Gigi Becali, who was arrested shortly after his election on accusations he ordered bodyguards to kidnap three men he suspected had stolen his car, has turned up for only 30 percent of the parliament's votes on new laws, according to votewatch.eu, a website that follows lawmakers.

But as voter interest drifts, lobbyists and big business have become increasingly active in the EU's political capital, targeting a core group of parliamentarians who have been left by absentee colleagues to write law for Europe.

GROWING FREELY

Last year, more than 4,700 lobbyists registered for an identity card -- brown to distinguish them from the white ones regular visitors use. The increase has been disguised by the absence of reliable records, according to Alter EU, a group that is pressing for greater transparency. It puts the number of Brussels lobbyists at 15,000.

The rise of the Brussels' lobby has come as relations between industry and parliamentarians have tightened, says the German Marshall Fund's Stokes.

It's no surprise that a boom has accompanied Europe's efforts to reform finance. Financial services make up about 6 percent of the EU economy but account for a far larger share in countries like Britain, Ireland and Luxembourg. About half of profits at individual banks end up in the pay packets of staff -- and some in the hands of its growing lobby.

Brussels is not the only place lobbyists set out to influence lawmakers and mold legislation. But they do it with considerably more freedom here than in, say, Washington. Members of Congress on Capitol Hill are confined by a strict code that forbids paid-for trips and meals. Lobbyists there must register how much they spend every three months, saying whom they visited and what was discussed. This information is posted on the internet, detailing everything down to the names of those involved.

Brussels' voluntary register, where some firms claim to have spent no more than the cost of a taxi ride to the local airport over the course of the year, is often ignored altogether by local lobbyists.

Yet lawyers from companies and industry bodies now routinely write the amendments that European parliamentarians insert into laws on everything from controlling poisonous chemicals to hedge fund speculation.

TURN A LAW ON ITS HEAD

It's a practice Lehne describes as "completely usual" in Brussels: "It's normal. I don't have any problem with that. The deciding factor is whether I as a parliamentarian can put my name to it. It is not the case that everything that comes from the lobby is bad per se."

Lehne says he would even consider amendments from his law firm's clients although such a request has "practically never happened.

"I would look at that proposal just as I would every other," he says. "I would decide if it was good or bad. Why should I reject it on principle? That would be nonsense."

Weisgerber, who was involved in rewriting EU legislation to control the use of dangerous chemicals, is also used to receiving ready-made lobby amendments. "It does happen," she says. "I don't see anything wrong with that. I often change or modify them. The majority, you write yourself."

Weisgerber says she helped eliminate many of the provisions in a chemicals law known as Reach, measures that she believes threatened Bavarian industry. "You can turn a law on its head as was done with Reach where there were more than 1,000 amendments," says the 34-year-old Bavarian. "I was personally responsible for inserting more than 100 of them."

At least one MEP may have gone too far. This week, Austrian parliamentarian Ernst Strasser admitted that he had accepted an offer of money by an undercover journalist posing as a lobbyist to put forward amendments to a law. He insists he had suspected a hoax, accepting the offer only to find out who was behind it. Austrian prosecutors are now investigating.

IGNORANT LEGISLATORS

Just as lobbyists turned to Weisgerber on chemical law, so too has the banking lobby, swamping MEPs with proposals to soften new rules on finance.

"You know the members of parliament who are industry-friendly," says one banking lobbyist, speaking openly only on condition of anonymity. "You build up the relationship and you know that they will put forward your amendments. Many of the MEPs are lazy. They are writing legislation about areas that they do not know about."

The industry's assistance is discreet but powerful. "Often clients do not want the public to know that they are the ones behind the amendments," says the banking lobbyist. "It is a difficult thing to explain."

Almost four years after the start of the banking and debt crisis, just three EU laws have been passed to regulate finance, a modest achievement in the eyes of some experts and even officials.

One of the few significant changes has been a bank bonus code to cap cash windfalls. It was introduced by MEP Arlene McCarthy, and survived intense fire from investment banks.

But McCarthy was forced to make concessions in a separate fight, on rules to hike the capital that banks must set aside to trade the sort of repackaged loans whose unraveling sparked the banking crisis.

The proposed law alarmed banks around Europe, including Deutsche Bank, one of the globe's biggest investment banks and a leading player in debt trading. Once branded a giant hedge fund, Deutsche feared tougher capital requirements would force the fire sale of its balance-sheet portfolio including loans, derivatives and debt worth almost 2 trillion euros, according to people involved in writing the law. Hugo Baenziger, Deutsche's top risk manager, travelled regularly from the group's skyscraper headquarters in Frankfurt to Brussels, visiting British diplomats and others to build a pro-industry alliance.

Banks also teamed up with parliamentarians who succeeded in pushing through a delay to the rules, originally foreseen for early 2011, until 2012.

'FLOW AROUND THE BOULDERS'

Jean-Paul Gauzes, an influential conservative who was also instrumental in writing rules for hedge funds, and Olle Schmidt, a Swedish parliamentarian, backed the industry line and proposed delaying the regime by amending the law.

The amendments those two MEPs put forward correspond closely with those written by the Association for Financial Markets in Europe (AFME), Europe's chief investment banking lobby group which represents Deutsche, Goldman Sachs, Barclays and others.

In a March 2010 email from Brussels-based lobby group Fleishman Hillard to a parliamentarian, an executive wrote that he believed Gauzes had been persuaded to propose AFME's changes. Shortly after the email, seen by Reuters, Gauzes did just that.

"For me, it's not a problem," says Gauzes. "Why should I write amendments that are worse than those of the industry?

"These are very technical matters. They must be written precisely. The lobbyists write it much better than I do."

"We are used now to seeing lobbyists provide off-the-peg amendments," says McCarthy. "These remarkably turn up, at times in triplicate, from certain members."

That's just fine, says one senior lobbyist. "You cannot expect industry to call 'stop'. People are busy earning money. It's like we are the river and they put boulders in our way but we just flow around them."

'ONLY CHAMPAGNE...'

Former journalist Giles Merritt believes companies are entitled to their say. To counterbalance what he calls the "bleeding hearts with very loud voices", he set up an industry forum for European policy debate called Friends of Europe. "You cannot have an industrial and economic strategy without picking the brains of industry and business," he says.

Others like Gauzes are more relaxed, saying lawmakers are free to make their own decisions. Olle Schmidt says he would never support a legal change he did not agree with.

"I'm not ashamed," says Gauzes, commenting on industry amendments he has proposed. "I don't get money or women. Maybe a bottle of champagne at Christmas but that's it."

PICK YOUR THINK TANK

Banks also often turn to Brussels' think tanks, Bruegel and the Centre for European Policy Studies. Both take money from companies to help cover their costs -- including individual salaries which insiders say reach 200,000 euros. One quarter of CEPS corporate members are from the finance industry. Bruegel received more than 800,000 euros -- almost a quarter of its budget -- from corporates including Deutsche Bank and Goldman Sachs. Both deny the sponsorship influences their views, which often shape EU policy.

"If industry were to compromise us, I may as well close CEPS tomorrow," says Karel Lannoo, who heads the think tank. Bruegel co-founder Nicolas Veron says less than 10 percent of its funding comes from the sector: "Our opinions often diverge with the financial industry."

The distinction blurs further when companies sponsor specific reports, some of which cost up to about 150,000 euros a pop. Respected academics can also be hired for such research to lend it extra weight at a cost of up to 5,000 euros a day. "We commission reports and if we don't like the findings we get them to change parts of the report or we just don't publish it," says another financial lobbyist.

In 2007, for instance, CEPS produced a research paper on the benefits of savings banks to the financial system. The report was sponsored by German savings banks, who co-own the country's seven landesbanks, all of which bar one turned to the state for help in the financial crisis.

"We are kind of independent," says one CEPS staff member, also asking to remain anonymous so they could speak frankly. "The pressure can be quite intense. So you have to be diplomatic."

A BLACK EYE?

But with little counterbalance to industry, many say the debate and the legislation are skewed in its favor. "We're losing the battle," says one European official in charge of writing finance law.

Sven Giegold, a German parliamentarian in Brussels, is a vocal critic of industry's influence. The Green MEP, who collects industry post in a plastic bag labeled "hazardous lobby waste", has set up a group to rally lawmakers to protest against banks' influence.

The Marshall Fund's Stokes goes further. "Appearances matter," he says. "Even the appearance of conflicts can threaten the legitimacy of the parliament. They are one scandal away from a huge black eye."

(Editing by Simon Robinson and Sara Ledwith)