Investigations in EU Member States

Collusion and overpricing in procurement of machinery in numerous EU projects

OLAF investigated possible overpricing of numerous projects implemented by a Czech company which was co-financed by the European Regional and Development Fund (ERDF).

Working closely with the National Organised Crime Agency of Czechia (NCOZ) OLAF examined project applications, procurement practices and the authenticity of the supply chain in manufacturing innovation projects.

OLAF established inflation of the true price of the projects, as far back as the application phase for the funds.

The investigation revealed multiple corrupt practices including, inflated budgetary estimates, manipulation of tender processes and inflated costs submitted as eligible expenditure. OLAF and the NCOZ established that this type of fraudulent behaviour affected 15 projects between 2009 and 2019.

OLAF’s administrative investigation led to financial recommendations to recover from spending €16 million awarded in project grants.

The NCOZ’s criminal investigation resulted in indictments for four natural and three legal persons.

Wastewater treatment plant

OLAF investigated a project related to a municipal wastewater treatment plant in France financed under the European Regional Development Fund (ERDF).

The investigation focused on a contract to renovate the premises, which was awarded to the multinational company in charge of the plant at the time. The contract was awarded by the local municipality without a tender procedure/competition, in contravention of public procurement law.

Following on-the-spot checks and multiple interviews, OLAF established that the municipality, which was also the beneficiary of the ERDF funding, disregarded legal advice to initiate a competitive procedure and simply offered a contract extension in direct violation of public procurement legislation.

OLAF further established collusion between the multinational company and the municipality.

As a result, OLAF recommended the recovery of close to €2 million of EU funds from the project. OLAF made an administrative recommendation to the relevant European Commission service to liaise with the national authorities managing the ERDF to ensure that the opinions of the national authorities in charge of the legal control of local authorities are duly taken into consideration and implemented.

What OLAF ‘saw’

OLAF investigated allegations of fraud with EU funds at a sawmill in Croatia.

The sawmill had received almost €4 million of the Cohesion Fund to construct a brand-new wood sawing line and modernise its IT system.

OLAF established that the EU-funded machinery and equipment of the new wood sawing line had not been fully installed therefore it was never operational.

OLAF also found that the EU-funded IT equipment that was acquired by the sawmill to help modernise its IT system, had never been properly used it could only be utilised after the non-functioning new saw line became operational.

OLAF examined the financial accounts and company records, discovering serious irregularities, including spurious financial transactions prior to the opening of the insolvency proceedings.

OLAF recommended the recovery of almost €4 million, the full amount of funding that was given to the sawmill.

OLAF investigated allegations of conflict of interest related to 23 projects in Portugal, co-financed by the European Social Fund (ESF).

The projects were to provide training for vulnerable groups equipping them with the skills to enter the labour market and reduce their financial vulnerability. For all 23 projects, the provider of this training was the same economic operator.

OLAF’s investigation established that the service provider had been involved in completing the application forms submitted by beneficiaries, which gave it a privileged position as a tenderer. The service provider provided documentation on behalf of the beneficiaries to ensure it would be awarded the contracts.

OLAF also found that the service provider had loaned money to several beneficiaries so that they could fulfil the required financial viability of the projects. The beneficiaries did not respect the principles of transparency, competition and sound financial management of public funds.

OLAF issued a financial recommendation to the European Commission to recover almost one million euro of ESF funding.

Research/Horizon

OLAF investigated – and confirmed, allegations that two companies implementing projects funded from 7th EU Framework Programme for Research and Horizon 2020 programmes did not have the capacity to fulfil the EU projects they were assigned.

Following investigative activities, including on-the-spot checks with digital forensic operations in Greece and Cyprus, OLAF discovered a long list of irregularities carried out by the companies. These included the creation of kickback schemes, fictitious costs and breaches in grant conditions.

It transpired that the two companies awarded these projects were actually managed by one individual using strawmen to carry out the fraud. OLAF uncovered multiple schemes pivoting around the manager which included conflict of interests among the employees who were practically all relatives or close friends of the manager; part of the employee’s salary being paid back to the manager as a kickback, and the beneficiaries paying a sizeable success fee to the manager.

This fraud impacted around 20 EU projects and had a financial impact of €8.5 million. In this case, OLAF issued multiple recommendations - financial, administrative and judicial.

An international IT fraud

OLAF and the European Public Prosecutor’s Office (EPPO) looked into suspected fraud worth €15 million in Romania.

The investigations concern IT projects financed by the European Regional Development Fund (ERDF) to support innovation and increase productivity.

The investigations uncovered a complex international fraud scheme, carried out by several actors and entities located in Cyprus, Czechia, Malta, Monaco and the United States of America, who allegedly syphoned off millions of EU funds through fake or incorrect invoices and then tried to launder the money.

In 2023, OLAF completed its complementary investigation into the financial aspect of the crime and recommended the recovery of €15 million to the EU budget, the full amount that the EU contributed to the project under investigation.

The criminal investigation conducted by EPPO is ongoing. In November 2023, EPPO carried out 38 house and premises searches and acquired a large amount of evidence, including data stored on IT devices.

Conflict of interest in RRF

The Recovery and Resilience Facility (RRF) made up to €648 billion (2022 prices) available to Member State governments to help stimulate their economies in the wake of the pandemic and fund key Commission priorities such as digital transformation and green transition. Almost €291 billion were committed by the end of 2023.

It is crucial that such vast amounts are protected from fraudsters. OLAF played a central role in developing RRF risk frameworks to help guard against fraud of this funding, and in 2023 OLAF investigated several cases of fraud against RRF.

OLAF investigated a possible conflict of interest during the evaluation of a call in the framework of the RRF financing instrument in Slovakia. The objective of the funding was to improve connectivity between universities.

In addition to confirming the conflict of interest affecting the specific project under investigation, OLAF found weaknesses in the guidance for the evaluators to ensure impartial and objective evaluation procedures and avoid conflict of interests.

OLAF issued a financial recommendation to the competent Directorate-General of the European Commission to recover €1.225 million and an administrative recommendation to follow-up with the Slovakian authorities on the weaknesses identified and ensure that the necessary remedial measures are implemented.

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