Stolen Millions in EU Funds – The Organised Crime and Corruption Watch, regional edition no2.

This is a collaborative bulletin researched by the Organised Crime and Corruption Reporting Project’s seven investigative outlets: Investigace.cz (Czech Republic), Bird.bg (Bulgaria), Frontstory.pl (Poland), Rise Project (Romania), Investigative Center of Ján Kuciak – icjk.sk (Slovakia), Átlátszó (Hungary), Context Investigative Reporting Project (Romania). The team will explore an organized crime or corruption topic for each edition and showcase the most relevant facts. 

Reporters from The Organised Crime and Corruption Reporting Project (OCCRP) network uncovered in the past decade dozens of EU funds frauds. This is the second part of a regional analysis of how EU funds are being defrauded.

Czech ex-prime minister’s farm and agricultural subsidies

One prominent potential case of EU subsidy fraud in the Czech Republic ties former Czech Prime Minister Andrej Babiš to the Stork’s Nest (Čapí hnízdo) farm investigation. Police began looking into Čapí hnízdo because of suspicions that Babiš’s company, Agrofert, changed subsidy rules in its favor by covertly lobbying the state administration.

Andrej Babiš, by Akademie věd České republiky _ Czech Academy of Science (Jana Plavec, Divize vnějších vztahů SSČ AV ČR) is licensed under CC BY-SA 3.0.

The farm, operated Agrofert, was drawing over €2 million in subsidies. The funds came from a governmental program for small or medium-sized enterprises. However, it would hardly qualify for the subsidy because it was part of the large and profitable Agrofert. Babiš has denied any connection to the Stork’s Nest. In January 2023, Babiš was acquitted of the charges, but the state prosecutor appealed the decision.

In 2019, the State Agricultural Intervention Fund (SZIF) decided not to reimburse subsidies to the Agrofert, a holding controlled by the former Prime Minister Andrej Babiš, and to the enterprises of the family of the former Minister of Agriculture Miroslav Toman. SZIF made the decision based on a preliminary audit report of the European Commission, which concerned Toman’s conflict of interest over projects of Agrotrade, which is 80 percent owned by the minister’s father, Miroslav Toman Sr. Agrotrade received a subsidy of €80 thousand for its poultry subsidiary. Toman denied any conflict of interest and said that the report itself mentions the fact that the projects in question were approved before he took office.

Sport subsidy fraud in the Czech Republic

In 2017, police charged three people and one company in a corruption case related to the Education Ministry’s subsidy programs to support sports. They arrested the head of the Czech Football Association, Miroslav Pelta, and the head of the Czech Union of Sport, Miroslav Jansta. The two were accused of illegally distributing subsidies in favor of the Czech Republic Football Association and other influential people. The court originally sentenced Pelta to six years in prison, a five-year ban on corporate directorships, and a five-million-korona (approx. 211 thousand euros) fine. The Appeals Chamber overturned the verdict, but last week the court confirmed the sentence.

Large-scale VAT fraud in the Czech Republic

The European Public Prosecutor’s Office (EPPO) launched 36 new investigations in Czechia, bringing the total of all active investigations to 54. Compared to Slovakia, a country half its size, the Czech Republic leads in the number of active investigations by nine cases. Total estimated damages are €275 million, of which active VAT fraud investigations make up more than 75 % of the damages. Most of these cases fall under non-procurement expenditure fraud: a type of fraud committed in the form of false or incomplete documents, leading to wrongful retention of funds from the EU budget. EPPO filed its first indictment in Czechia in 2022 against three people and three legal entities accused of subsidy fraud, which cost the Czech and EU budget approximately €5,5 million. Czechia was also involved in a large-scale VAT fraud scheme involving platinum coins in Germany through money laundering organized in the Czech Republic.

The Polish recipe for EU funds frauds

According to the European Anti-Fraud Office (OLAF) the embezzlement of EU funds in Poland has been growing in recent years. Between 2006 and 2013, the total number of investigations on which OLAF issued recommendations to Poland was 17. Between 2015 and 2021 the total increased to 36.

In June 2013, the most influential politicians of the small, right-wing, and — at the time — not very significant Solidarna Polska party met at the Kijów Cinema in Krakow. Officially, they appeared at a climate conference organized with MEP money. In fact, the climate conference was a party convention, with party leaders Zbigniew Ziobro and Jacek Kurski prominently in attendance. The event – with embezzled European Parliament funds – cost 40,000 euros. In 2015 Ziobro became minister of justice and prosecutor general in the right-wing government. Today, all prosecutors in Poland report to him. Kurski was also fortunate – he became head of TVP, the state-owned propaganda TV station.

Zbigniew Ziobro, Source_-Adam-Guz_KPRM-via-Wikicommons

The fake IT projects

As the latest OLAF report indicates, fraudsters in Poland have recently been finding new ways to embezzle EU funds. One way is fake IT projects, such as websites or software development. OLAF estimates that this type of fraud cost the RU up to €11 million in 2021.

Source_-Xavier-Hape_Wikimedia-Commons

In Poland most important state organs are run by one political entity. The populist United Right coalition, which has been in power since 2015, decides how to distribute EU funds while also directing institutions responsible for prosecuting corruption. The Central Anticorruption Bureau (CBA) reports to minister Mariusz Kaminski, an MP from the ruling Law and Justice party. In 2015 Kaminski was convicted of abusing his powers during one of the CBA’s operations. In November 2015, while the sentence was still appealable, Polish President Andrzej Duda (also of the Law and Justice party), elected a few months earlier, used the right of clemency in his favor.

Poland is one of five member states (Denmark, Ireland, Sweden, and Hungary) that do not cooperate with the European Public Prosecutor’s Office (EPPO). In an open letter to the European Commission in February 2022, the EPPO stresses that whenever it conducts a cross-border investigation, it is unable to collect evidence located in Poland, so its ability to fight crime targeting the Union budget is “systematically hindered.”

The failed cycling adventure park in Hungary

The Hungarian investigative center Atlatszo uncovered the case of misuse of EU funds related to an adventure park that was demolished after seven years and only fifty-five users. The cycling adventure park in Hatvan (a town in North Hungary) is a textbook example of the misuse of EU funds. Last autumn, the city leaders decided to remove the remaining memento because it made no sense to keep it running.

The adventure park was built with a net cost of 140 million forints (ca. €370,000) seven years ago. Since then, only 55 people have used it, meaning each cyclist costs EU taxpayers HUF 2.5 million (ca. €6500). The maintenance period lasted until July 2021, after which it was open for another year, but in autumn 2022, it was finally shut down. The city still needs to clear the site, but plans are already underway for a new bike park.

The low number of users might have been caused by the fact that some parts of the adventure trail were rather dangerous, even for experienced cyclists. One cyclist was seriously injured in the opening year. There are more accessible parts of the course that can be enjoyed by amateurs but are also quite steep.

In the middle, there is a jump, and the final section led straight into the river – where a concrete wall was built to hold back those coming at higher speeds. Officially, the facility was only available for use at the cyclists’ own risk after prior registration.

In an FOI request, Atlatszo asked the municipality how many people have used the trail during its lifetime. The response showed that the adventure park had a total of 55 visitors. In the last four years, 2018-2022, only 1 (one) person used it.

Treetop walkway without any trees

As Atlatszo discovered, the mayor of Nyírmártonfalva, Hungary, won a gross 64 million HUF (approximately 166 thousand EUR) EU funding for the project to build a 50-meter-long canopy walkway. Unfortunately, the forest was clear-cut during the construction of the treetop walkway, which now stands in a desert.

Mihály Filemon, governing-party mayor of the village, won the grant as a private person through the Rural Development Programme. According to the EU grant application register, he applied in 2018 and was selected for the grant in 2021. Mihály Filemon has been mayor of Nyírmártonfalva since 2019. The land on which the EU-funded treetop walk stands also belongs to him.

Atlatszo reporters tried to contact Philemon, but he did not want to talk. A few days later, however, the mayor gave an interview to ATV, a Hungarian television. There he stated that since the tender took four years and in the meantime, construction prices increased, they cut the forest and sold the wood to finance the gap between the planned and the real investment costs.

The curious case of the politicians’ villas in Bulgaria

Investigative reporters from BIRD, the Bulgarian OCCRP member, are noticing that Bulgaria shows a minimal effort to defraud EU funds despite the numerous journalistic investigations proving misuse. This relates to the general unwillingness of the Bulgarian prosecution office to pursue corruption linked to politicians. BIRD alleges the Bulgarian EPPO-delegated prosecutors have questionable backgrounds and are possibly sabotaging EPPO efforts. So far, only one person has been indicted and judged for misappropriating EU funds for the extremely low amount of €2500.

The 2021 European Public Prosecutor’s Office report counted Bulgaria with 98 ongoing fraud cases in the investigative phase, just behind Italy. The estimated damage is amounting €427 million. The EPPO received 273 reports, most of them from the national authorities. This is the third score after Luxembourg’s 1351 reports and Romania’s 336 reports.

According to BIRD, this can be explained by the anticorruption activity of the former government of Kiril Petkov, who was removed from office in June last year. Petkov and his team were in open conflict with Prosecutor General Ivan Geshev. He even opened a special bureau in his office to relay reports to EPPO in a secure way, without the knowledge of Geshev and the Bulgarian prosecutors.

Under the European Structural and Investment Funds (ESF) allocated for 2014-2020, Bulgaria got almost €11 billion and another €10 billion for 2021-2027.

Bulgarian investigative reporters uncovered previous large-scale fraud. Dubbed the Guest houses scandal — it uncovered politicians abusing EU money designated for tourism infrastructure with rural guest houses. Instead of tourist guest houses, the politicians built posh villas for personal use. The scandal revealed by Bulgarian investigative reporters didn’t end with a single seizure of property, and the few cases brought to justice are stalling for now.

OLAF investigated the guest houses and concluded all 377 projects had funding irregularities. But instead of recovering the money from the fraudsters, it was left to Bulgarian taxpayers to pay back €23 million to the EU budget for those fake guest houses. The 2021 OLAF also reported fraud in the promotion of agricultural products, fraud in vineyards, and afforestation in three cases in Bulgaria, but not a single case on infrastructure construction, where investigative journalists have reported blatant abuses.