Funding for environmental projects: Water and wastewater management
Several cases investigated by OLAF and completed in 2019 focus on water and waste management infrastructure projects intended to benefit local communities across the EU.
One particularly complex cross-border case focused on a project based in Romania. Working alongside the Romanian National Anticorruption Directorate, OLAF uncovered a network of fraud and money-laundering activities linked to an EU-funded project for water supply and wastewater infrastructure. The project, which was valued at €102 million, had as its beneficiary a local public water supply company.
OLAF’s investigation took it first to Germany, where it carried out a number of on-the-spot checks and interviews with persons concerned and witnesses, and analysed banking transactions with a view to identifying the real destination of the EU funds allocated to the project.
It was found that, following the tender procedures that took place within the project, the beneficiary awarded two work contracts to a joint venture between a Romanian company and a German construction firm. The Romanian firm was the leader of the venture, controlling 70 % of the business, and was the sole recipient of all the EU money from the beneficiary.
During the course of its investigation, OLAF found the German company was in fact not aware of its supposed role in this joint venture, the tender procedure, the EU-funded project or the work allegedly taking place in Romania. In fact, in order to prove that it had the capacity to carry out the contracted work, the Romanian company had created a fictitious joint venture, using the name, reputation, experience and financial situation of the German company to help it win the tenders without the German company ever being aware of its name being used in this way. Not surprisingly, therefore, the German company never received any payments from its Romanian ‘partner’ in the fictitious joint venture, or indeed from any other sources in relation to this project.
The Romanian company did more than rely on the reputation of its alleged partner, however. OLAF’s investigation also discovered that the Romanian company had falsely claimed to have carried out a number of similar projects in the past, to prove that it had the capacity to manage the project and met the minimum qualification requirements in the award procedure. In fact, the Romanian company had never completed any projects related to works in water supply and wastewater infrastructure.
Having successfully convinced the beneficiary of the EU funding that it had the capacity and experience to manage the contract, and notably after receiving large amounts of money from the EU funding, the Romanian company simply abandoned the works. The contracts for both the water and wastewater plants were cancelled, delaying as a result the much-needed environmental improvements that they would bring.
OLAF also analysed the financial flows related to the EU money invested in this project and given to the Romanian company, allowing it to trace the real destination of the money. OLAF was able to provide the Romanian prosecutors with additional information to support their criminal case against the perpetrators of the fraud and the money laundering. OLAF also made a recommendation to the European Commission’s Directorate-General for Regional and Urban Policy to recover more than €6 million.
Customs & counterfeit products
Counterfeit goods can pose a significant risk to human health and safety, as well as to the environment. Each year OLAF investigates a number of cases of counterfeiting, many involving complex cross-border networks.
OLAF received information in January 2019 about the dismantling of an illegal factory in China producing counterfeit shampoo. However, a large cargo of shampoo had already left the factory by sea prior to its being dismantled, and OLAF feared it might be headed for Europe. OLAF monitored the shipment’s journey out of the Chinese ports from mid-January, tracing its complex route, which included passage and stops in different ports – in China, Korea, Mexico and Colombia – and loading and unloading on various vessels.
OLAF experts kept a close eye on the containers using specialised software, which gathers real-time data from vessels and ports around the world. When it became clear that there was a real risk of the shipment being diverted before it reached its stated final destination in Venezuela, OLAF alerted national authorities in Colombia and Mexico, and recommended the search and seizure of the goods. In close cooperation with OLAF and with particular support from Spanish customs, the Colombian and Mexican authorities found a staggering 400 tonnes of fake shampoo, enough to fill several swimming pools, with an estimated retail value of €5 million had it ever reached the European market.
New focus on water pipe tobacco
One feature of OLAF’s work is the continuing battle against cigarette smuggling and counterfeiting.
Since 2018, OLAF has been monitoring more closely the smuggling of water pipe tobacco. Much of this tobacco is declared under the EU transit system, transported via the EU to other countries, but with a high risk of being smuggled illegally into the EU while en route.
In particular, in 2019 OLAF launched a number of investigations into suspicious water pipe tobaccoconsignments that had entered an EU Member State via a third country. OLAF’s in-depth analysis uncovered that a remarkable number of consignments had entered the EU and been stored in a free zone warehouse and then apparently destroyed at the request of the consignment’s owner. As this behaviour appeared unusual, to say the least, OLAF decided to examine one of the consignments in May 2019. Investigators discovered that 85 000 kg of counterfeit water pipe tobacco was being stored in the warehouse; the goods were duly seized. As a result of OLAF’s investigations, two other Member States seized a combined total of 9 000 kgof fake water pipe tobacco, while a further 15 000 kg was seized in another country outside the EU. Further investigations revealed that all the tobacco originated from the same source. The tax loss related to this illegal business was estimated at almost €14 million.
Siphoning off money from Syria
Perhaps the most high-profile case of using EU funds for illegal purposes concerned a well-known non-governmental organisation (NGO) involved in supporting EU humanitarian aid efforts in Syria. The EU is a leading donor to the global humanitarian aid efforts in Syria, where millions of people are in need of medical and food aid, water and shelter, with significant sums available to support projects working in this field managed by the European Commission’s Directorate-General for European Civil Protection and Humanitarian Aid Operations.
OLAF began investigating the NGO in question in May 2016 on suspicion of corruption and manipulation in the public procurement procedures funded by the EU in order to provide emergency assistance to civilians affected by the conflict in Syria. The NGO had received nearly €19 million in EU funds from the European Commission though four separate grant agreements.
In the search for hard evidence, OLAF performed an on-the-spot check, together with forensic data acquisition, at the NGO’s headquarters. Investigators found evidence of corruption by two former staff members of the NGO, who had set up a sophisticated fraud that was used to siphon taxpayers’ money away from the humanitarian crisis in Syria and into their own pockets and those of their collaborators. The investigation also found evidence of significant shortcomings in the way that the NGO had administered EU money.
OLAF’s investigation was concluded at the end of 2019 with a recommendation to recover nearly €1.5 million. The two individuals identified by the investigation remain at large.
EU staff investigations
OLAF has a unique mandate to carry out internal investigations into the EU institutions, bodies, offices and agencies for the purpose of fighting fraud, corruption.
An OLAF investigation concluded in 2018 revealed that a former Member of an EU Institution carried out many “missions” which were not related to the performance of his/her duties, and used the institution’s funds for representation expenses and for private events.
The initial allegations were submitted to OLAF by the EU Institution in question. The investigation also established that the Member was absent from the institution for 128 days without any justification and that the fuel cards, put at the Member’s disposal, were also used for activities that were not linked to the fulfilment of his/her mandate. The use of the institution’s resources for private purposes is not in compliance with the applicable financial rules and ethical guidelines.
In this light, OLAF recommended disciplinary measures and the recovery of more than EUR 500 000.
In addition, OLAF issued a judicial recommendation taking into account that the Member deliberately misrepresented the private nature of at least five significant missions. These facts may constitute a criminal offence pursuant to the applicable criminal law and OLAF issued a corresponding judicial recommendation.
The investigation revealed that the Member failed to declare his/her external activities related to the management board of a national political party and his/her position as managing director of a real estate company. The Member also transmitted confidential special reports to unauthorised persons.