Corruption undermines government and the trust of citizens in their government. If it passes unchecked, widespread corruption leads to chaos, uncertainty and inefficiency for government and society. Informal decision-making structures, which fall outside the processes and methods of democratic verification and transparency, are flourishing. Undermining and eroding institutions and democratic procedures are perfect match for widespread corruption. The law provides for criminal penalties for official corruption; however, the government did not implement the law effectively, and officials frequently engaged in corrupt actions with impunity. According to World Bank governance indicators for 2008, corruption was a serious problem.
Corruption remains prevalent in many political and economic institutions. The overly-complex business registration and licensing process is particularly vulnerable to corruption. Businesses must navigate a burdensome and complicated web of regulatory procedures to obtain the necessary licenses to begin operations. With the large number of officials involved, there are multiple opportunities to demand "service fees." Domestic and international entrepreneurs often have been known to pay bribes to obtain necessary business licenses, or simply to expedite the approval process.
For example, local authorities do not generally accept degrees from international universities, creating problems for some locals, but many foreign investors and other foreign businessmen. Due to an outdated law that has yet to be revised, employees of government, business and financial institutions that have foreign degrees are obliged to get these degrees "validated" by the local authorities. The process for validation is rather obtuse, and opens the door for rent-seeking government officials.
Transparency International (TI) operates a branch office in BiH. TI's 2008 Corruption Perception Index ranked BiH 87 (a decline over 2007, when it was ranked in 84th place) out of 179, on par with countries such as Algeria and Sri Lanka. Investigations of the Transparency International (TI) performed the previous year on the rate of corruption in 180 countries of the world showed that BiH took the 93rd place. Citizens belonging to different ethnic groups in the country, view however different sectors as most corrupted. While the Bosniak population of Bosnia and Herzegovina views the health sector as most corrupted, Bosnian Serbs name the privatization sector, while Bosnian Croats perceive that corruption is most spread in the judicial system.
On 23 September 2008 representatives of the Transparency International presented results of investigation of the "Financing political parties". Investigating perception of corruption before the local election has shown an absolute disappointment of population in political parties. Although 70% of questioned persons think that political parties are the most corrupted institutions, and 60% of them believe that the quality of life will not improve after upcoming local elections. Investigation has been performed in June of 2008 in 65 municipalities in BiH, and on the representative sample of 1.600 adult citizens of BiH. Investigations show that more than 25 million KM was being put aside for financing political parties from different levels of the Government in BiH, so the legislative frame in this field was unclear and contradictory, and the institutions for observing application of legislative frame were inefficient.
On 19 February 2009, SIPA announced that it filed a criminal report for corruption against Republika Srpska government officials, including Prime Minister Milorad Dodik, in connection with allegations that they were involved in several illegal construction tenders. Although the Republika Srpska government cooperated with investigators, RS officials said the entity government would "reassess" its relationship with state-level law enforcement bodies.
On 09 September 2009, the State Court began corruption trials against Edhem Bicakcic and Dragan Covic, president of the Croatian Democratic Union of Bosnia and Herzegovina party, for alleged offenses committed during the time they served as prime minister and deputy prime minister of the Federation, respectively. The trials continued at the end of 2009. During 2009 Transparency International maintained its allegation that Prime Minister Dodik misappropriated public funds and pocketed revenue from the privatization of several formerly state-owned enterprises. Dodik claimed in press interviews that the NGO was engaging in blackmail and racketeering. Transparency International charged that Dodik's allegations were attempts at retaliation and complained that state-level judicial institutions failed to investigate the case against him. In June 2008 the State Court found Mladen Ivanic, president of the Party for Democratic Progress and a House of Peoples delegate, guilty of misuse of public funds when he was Republika Srpska prime minister from 2000-02. The court sentenced him to 18 months in prison. An appeal was pending at the end of 2009, although Ivanic remained in office.
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