In the fall, the European Union published two major reports offering a comprehensive overview of the state of play in corruption and fraud of European funds for 2019. One of them is published annually by the European Anti-Fraud Office (OLAF); the other came directly from the European Commission. There are two main reasons for why we should be interested in the reports’ findings, and I will summarize these in this article.
- The fight against corruption and fraud has become more urgent due to the Covid-19 crisis. In the current health and economic crisis, protecting European citizens’ money is more important than ever before. In the following years, funds from the Covid-related Recovery Fund will be distributed. The Czech Republic will be eligible for up to 175 billion crowns and it is essential that this money be channelled into innovation, digitalization of the state, and education, not into the purses of fraudsters, oligarchs, and the mafia.
- In general, it is much easier to prevent corruption and fraud than undergo lengthy recovery of the money lost. A report by the European Court of Auditors shows that out of the 8.8 billion EUR lost to fraud and corruption between 2002 and 2016, only 2.6 billion was recovered.
OLAF is charged with protecting the EU’s financial interests and detecting fraud of European funds. It conducts administrative investigations and collaborates with national investigative authorities. OLAF’s activities in 2019 were summarized in its annual report. In the Czech Republic, it focused on Prime Minister Babiš’s conflict of interests, and in 2019, the agency investigated and closed 3 cases there. In the last year, OLAF opened 223 investigations, which led to 181 concluded cases, and issued 254 recommendations. It recommended the recovery of a total of 486 million EUR that had been lost to fraud.
European Commission is responsible for making sure that European funds end up where they are supposed to. Once a year, they publish the Report on the Protection of the European Union’s financial interests (the PIF Report).
First the bad:
- Both reports’ findings show there is a systemic problem with subsidy fraud in agriculture and the cohesion policy, meant to balance out the differences between regions. Last year, fraud in agriculture amounted to 230 million EUR. One trend is having fewer fraud cases, but with huge sums lost in each one. In case of the cohesion policy, the fraud that was uncovered channelled over 840 million EUR from the EU’s budget. The most vulnerable field is research and technological innovation (surely we all remember the Penam toast bread). Problems with subsidies persist especially in Central and Eastern Europe, where oligarchs take over the land owned by small farmers to gain access to more funding. This region also lacks any effective measures against fraud in paying agencies and intermediary companies. That allows for monstrous corruption cases, such as the recent Dobytkár scandal in Slovakia. Non-transparent records also mean that even the European Commission often does not know where the money from the EU’s shared budget ends up. We do have the Arachne system though, which collects data on the final beneficiaries of EU funds. When the authorities know the real owners of a company that has applied for subsidies, it becomes easier to evaluate whether there is any danger of conflict of interests or fraud. Using Arachne should be obligatory, and the data should be accessible to the European Commission and OLAF.
- We have major issues with public procurement; the situation in healthcare is especially alarming. That is extremely problematic, because much more money will be fuelled into healthcare in the following years due to Covid-19 and it is essential that it is not lost to embezzlement. At the moment, fifteen Member States have already found irregularities in medical contracts, with the biggest problems in Romania, Slovakia, and Poland. Yet the Commission has stated that the fact some states have not been reporting these anomalies in no way suggests they do not have them. In the last year, the number of cases involving the smuggling of unapproved drugs and medical equipment has increased. This is a cause for concern, as it can be extremely dangerous.
- The Covid-19 crisis also naturally created the need to award some public contracts using emergency procurement procedures. But urgency often causes errors, omissions, and problematic choices of suppliers. We cannot let up when it comes to control over expenditure from the EU’s budget. Member States have to strengthen the transparency of how they use European funds and award every emergency contract separately. We also quickly need to transfer to e-procurement, which will make oversight easier.
- Only 39% of OLAF’s recommendations led to indictment last year. Prosecutors often don’t use materials collected by OLAF (for example various documents) and start investigating from scratch, which wastes their time. In some states, the legal system forbids the courts from using OLAF’s recommendations and findings as evidence.
- Another cause of concern is the rise in the number of fraud cases in environmental and sustainability projects. This means we lose the European taxpayers’ money and reap none of the benefits – the reason why we support environmental projects in the first place. The European Commission expects that this area of crime and fraud will be on the rise in the oncoming years and plans to pay particular attention to it.
- The EU has adopted a new Whistleblower Directive, which will ensure better protection for people who blow the whistle on major breaches of EU law in the public interest. A whistleblower is for example the current or former employee who exposed unethical or illegal conduct within a company or an institution. Member States have to implement this Directive in their national legislation by the end of next year.
- In the April of 2019, the European Commission adopted a new anti-fraud strategy, which finally emphasizes using data analysis, greater transparency, and computer forensics to combat fraud. These fields will benefit from major investments.
- In 2019, we have achieved significant progress in creating the European Public Prosecutor Office. The Office will become operational by the end of this year and it will have the power to conduct criminal investigations, arrest suspects, or freeze accounts. Once functional, the office should ensure more successful prosecution of financial crimes and easier recoveries of money lost to fraud.
- The European Commission presented its first report evaluating the rule of law situation in all of EU’s member states. For more information on how Czechia and other states fared, you can read this article. The report does not introduce any direct sanctions, but its findings will hopefully help negotiators push for rule of law conditionality on EU funding. We simply cannot allow European money to fund the Slovak mafia, Bulgarian oligarchs, or Prime Minister Babiš’s unprofitable businesses. We should know the final results regarding this condition by the end of this year. Let us hope that Europe will find functional solutions, not just an empty statement that will never be used in practice.
- The PIF directive came into force in 2019. It was created because of the Member States’ long-term inability to prosecute fraud of European funds. The success rate of these prosecutions also wildly differed from state to state. The Directive provided a definition of criminal offences affecting the Union’s financial interests and minimum and maximum sanctions. Criminal offences defined in this directive will be investigated, prosecuted, and enforced by the European Public Prosecutor Office.
The conclusion is clear. Member States are facing challenges when it comes to controlling European money. The EU, on the other hand, needs leverage to crack down on fraudsters. We cannot rest on the laurels of our limited successes. Now, the European Commission has to address the whole system of financial control and fraud detection. After all, fraudsters are inventive: as soon as we have uncovered one fraud scheme, another one, much more sophisticated, will be cropping up in its place.