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31st Jul 2016

Up to €2.2bn of public funds stolen in eight EU states

  • An Olaf commissioned study identified bid rigging, kickbacks, conflict of interest, and deliberate mismanagement of EU funds in eight member states (Photo: wikipedia)

Up to €2.2 billion was stolen in public and EU funds in eight member states in 2010, according to a report commissioned by the EU anti-fraud agency Olaf.

The figures, released on Tuesday (1 October) at a European Parliament conference on corruption, represent the estimated overall direct costs of corruption in public procurement in five major sectors like construction and water treatment.

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The results of the study, conducted jointly by accountancy firm PwC EU Services and Ecorys with the support of the University of Utrecht, is based on a methodology that allows for the probability of corruption to be estimated for the product groups.

France, Hungary, Italy, Lithuania, the Netherlands, Poland, Romania and Spain were selected at random for the study.

Speaking at the conference, EU anti-fraud commissioner Algirdas Semeta, said the study proposes a new approach that focuses on calculating the costs of corruption.

“The study puts concrete figures to what we have long recognised as a threat to public finances and it confirms that once a procurement project is affected by corruption, the public losses increase substantially,” he said.

The study said the cost of corruption is equivalent to 3 to 4 percent of the total procurement budget.

“This seems at first sight a higher estimate than the commission first published two years ago,” said Semeta.

The commission put the estimate at 1 percent.

Semeta explained the difference because the study looked at eight member states in five specific sectors most exposed to risk of corruption.

“For the commission, its findings are a useful counterpart and we are committed into looking further into why so few cases are reported by member states,” he noted.

Member states reported nine cases of suspected or established corruption of EU funds in 2012.

He noted that the commission is finalising its first anti-corruption report due sometime in November. The report will look specifically at corruption into public procurement.

The Olaf-sponsored study was critical of the fragmented nature of public procurement procedures and lack of transparency. It noted that no organisation or body is tasked to fight corruption during the process.

Also missing is a national or EU-level authority to integrate all data public procurement for people to scrutinise.

Among the most common ways to steal money is to artificially inflate the price of a contract beyond the actual market value.

One case involves a procurement to reconstruct a historic city centre. The tender had a budget ceiling of €4.32 million. The only bidder submitted an offer for €5.4 million, which was rejected.

The procurement was then relaunched with the same bidder winning the €4.32 million contract.

But later on, costs increased by €1.08 million, making the price of the project the same as the company’s original offer.

Another case involves 10 civil servants from different municipalities who handed over confidential information to a construction company concerning several invitations to a tender on road projects.

In return for the confidential information, the civil servants were rewarded with cash and VIP seats at football matches and Formula One races and flight tickets to exotic destinations.

A legal revolution

To combat conflict of interests, the EU developed a definition, which they included in a revised version of the public procurement directive.

Tabled in 2011, the directive is under legislative scrutiny at the European Parliament.

A high-ranking commission official at the conference said the definition, which covers actual, potential or perceived conflict of interests affecting staff members of the contracting authority or of procurement service providers, would create a legal upheaval in some member states.

“I was told by a series of member states that such a broad concept would be a legal revolution in their systems,” said Joaquim Nunes De Almedia, director of the public procurement department in the commission’s directorate-general on the internal market.

The reformed directive includes setting up national oversight bodies to ensure contracts worth at least €1 million are properly implemented but De Almedia noted that corruption is largely a question of culture and of social acceptance of corrupt practices.

“To change this we need much more than new laws and new databases,” he said.

This article was corrected on Wednesday 2 October at 10:00. The original title 'Up to €2.2bn of EU funds stolen in eight member states' was changed to 'Up to €2.2bn of public funds stolen in eight member states'. The study looked at both national budgets and the EU budget

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