Market trends show that multinational companies are rushing to invest in Greece, which is now among the fastest growing economies in the European Union (EU), despite global economic headwinds.

The Greek economy is catching up to the EU average after more than a decade of austerity and stagnation. Many investors consider Greece’s environment ideal. It presents the high growth prospects of an emerging economy but with the geopolitical and fiscal stability of an EU country and monetary policies of the European Central Bank.

But, the major upside is not risk-free. If you are an executive ready to reap the benefits of Greece’s investment gap, you are probably focused on financial risks. If you lead your organization’s integrity program, you are probably thinking how to effectively mitigate integrity risks in a new jurisdiction. A first step towards peaceful weekends is knowing what you are facing.

State of the Greek economy

As of late 2023, Greece has been breaking economic performance record after record. Its Gross Domestic Product (GDP) is among the highest in the EU. In 2021, it grew by 8.4 percent, and in 2022 by 5.9 percent.¹ It is expected to grow by 2.4 percent in 2023.² Greece has reduced its debt-to-GDP ratio from approximately 207 percent in 2020³ to approximately 166 percent in mid-2023.⁴ It is the only EU country whose prime rate today is lower than a year ago. The Athens Stock Exchange (ATHEX) closed in 2023 about 35 percent higher than in 2022.⁵ Unemployment has been below 10 percent,⁶ the lowest level in more than a decade, and inflation is on par with the EU average.

This is driven at least partly by external capital inflows that in their totality are said to surpass the support that Greece received with the Marshall Plan at the end of World War II. EU-provided funds are estimated to account for 3 percent of the country’s GDP. Foreign direct investments, which in 2020 accounted for 10 percent of Greece’s GDP, are now estimated to account for 14 percent.

Seeing this, international rating agencies have upgraded Greece to investment grade, ushering in additional investment.

New sectors that have been growing include pharmaceuticals and health care providers, artificial intelligence, FinTech, transportation, renewable energy and energy interconnectedness, and retail (often through public-private partnerships (PPPs)). Traditional sectors such as shipping and hospitality are also seeing part of the action.

But, there are risks. Many focus on economic risks such as: the economy losing momentum; an aging population; the GDP to debt ratio and unemployment rate being at the lowest in over a decade but objectively still high; ATHEX’s capitalization is impressive, but still considered low by EU standards; the trade deficit; and unrealistic investment return expectations that can lead to volatility. Others also focus on legal risks, such as delays in resolving legal disputes and an only nascent alternative dispute resolution culture.

There are also, of course, integrity risks. Sophisticated investors should act proactively to balance Greece’s expected growth potential against known integrity risks.

Integrity risks in Greece

Extensive Greek bureaucracy and government touchpoints throughout the investment cycle increase corruption risks. Although the Greek government has made strides in streamlining bureaucracy, many investments undergo rigorous review by several agencies with overlapping responsibilities at inception. Once operational, businesses are frequently subjected to regulatory, administrative, and tax inspections that can result in fines, which may need to be disputed in court. Winding down an investment may become the subject of multi-year litigation in national courts, although Greece recently amended its bankruptcy code with promising initial results. Counterparties in transactions at every stage of an investment may be state-owned enterprises, without this status being readily apparent. PPPs prevail in certain sectors, such as transportation and health care.

Another integrity risk that foreign investors should be aware of when preparing to invest in Greece is inadvertently breaching U.S. or EU sanctions. Given Greece’s location and historical and cultural ties, Russian businesses, directly or indirectly, used to operate in Greece. As sanctions have not been a high enforcement priority for Greece until recently, the regulator in charge of enforcing EU sanctions has not brought significant enforcement action. Further, U.S. secondary sanctions against Iran may also be a cause for concern, as Greece and Iran have historically engaged in trade, especially in the transportation and energy sectors.

The risk of becoming a victim or unwilling participant in money laundering and fraud can derive from corruption and sanctions risks. Unscrupulous local counterparties could use proceeds of misconduct to fund a transaction. Local companies often appear to be owned by an individual, but in reality, are controlled by an obfuscated third party. Companies misrepresenting their financial or experience qualifications are not unheard of. Related - party transactions to evade or embezzle value-added tax (VAT) payments are not infrequent. Historically, allegations of criminal tax evasion frequently surface.

What can you do?

Mitigate integrity risks by adopting measures that are commensurate to the risks. Instead of rushing into an opportunity, proactively assess integrity risks, in addition to economic and other legal risks. Unscrupulous business partners often give rise to the foregoing risks.

For new investors, conducting enhanced desktop due diligence on potential counterparties is a critical first step prior to establishing a relationship. Discreet on-the-ground inquiries may also be warranted in higher-risk situations. Global companies should leverage their experiences in similar markets while assessing the stakeholders of an opportunity in Greece.

Investors with existing operations in Greece should seek input from their teams in Greece, who are likely to have unique market insights and awareness.

Local counsel and integrity advisors can act as gatekeepers. However, this is an imported and emerging practice in Greece. Investors should look for international counsel and advisors with demonstratable experience in Greece and are supported by a trusted local team. An international and Greek roster can ensure that integrity pitfalls are identified and addressed.

Once operational, ensuring through training that the in-country employees adhere to the same integrity standards as elsewhere is crucial. As with external advisors, integrity compliance is a novel concept for most Greek employees and there may be a cultural gap that the investor needs to overcome. Cultivating a speak-up culture and effectively implementing a compliance hotline may be more challenging in Greece due to cultural and historical considerations. This is true even after Greece implemented the EU directive on the protection of whistleblowers. Engaging qualified international and local advisors to deliver customized training with due regard to local sensitivities could be an effective way to empower Greek employees.

Financial controls and frequent financial and compliance audits could prove effective means to prevent and identify potential misconduct (and on average in-country employees are likely to be more familiar with such processes).

If misconduct occurs, you should investigate it. Engaging local counsel will be necessary, as conducting an investigation in Greece would have to comply with local laws, including the EU General Data Protection Regulation (GDPR), as applied by the Hellenic Data Protection Authority.

Similarly, Greece has historically been an employee-friendly jurisdiction that may limit the leverage that an investor has to interview witnesses and make them available to foreign authorities. Experience shows that neither is insurmountable.

Perhaps the more significant challenge is explaining to local employees, business partners, and regulators why a foreign investor is seeking to investigate misconduct, a function that most Greeks would associate with national enforcement agencies – not a private party or employer.

Conclusion

Thinking of integrity risks “inside” and “outside” of Greece and not losing the bigger picture is also key to peaceful weekends. Several U.S. criminal and regulatory enforcement agencies have recently announced declination and leniency policies for investors who acquire problematic companies, voluntarily and promptly report, and appropriately remediate.⁷ Engaging counsel who understands the interplay of Greek integrity risks and U.S. or international legal and compliance requirements can effectively minimize the risk of enforcement at home or abroad.

Authored by Stephanie Yonekura, Vassi Iliadis, and Nikolaos Doukellis.

References

1 World Bank Data for Greece available here: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=GR

2 European Commission, Economic forecast for Greece, available here: https://economy-finance.ec.europa.eu/economic-surveillance-eu-economies/greece/economic-forecast-greece_en

3 Eurostat, Economic Trends available here: https://ec.europa.eu/eurostat/cache/infographs/economy/ecotrends/index.html

4 Eurostat, Euro Indicators, Second Quarter of 2023 available here: https://ec.europa.eu/eurostat/documents/2995521/17725721/2-23102023-BP-EN.pdf/94083c00-c5e1-fe02-a30f-6f4122e9d744#:~:text=The%20highest%20ratios%20of%20government,%25)%20and%20Sweden%20(30.7%25).

5 Wall Street Journal, Athex Composite Share Price Index, available here: GD.GR | Athex Composite Share Price Index Stock Prices and Charts - WSJ.

6 Eurostat, Euro Indicators, Unemployment: Total, available here: https://ec.europa.eu/eurostat/cache/dashboard/euro-indicators/

7 P. Spivack, S. Stewart, M. Sullivan, C. Tenaglia, D. Shulak, K. Hellings, B. Peters, and S. Propst, DOJ announces policy for self-disclosures on criminal misconduct of acquired companies, with a catch, October 9, 2023, available here: https://www.engage.hoganlovells.com/knowledgeservices/news/doj-announces-policy-for-self-disclosures-on-criminal-misconduct-of-acquired-companies-with-a-catch