EU Budget Comissionner Johannes Hahn and European Commission President Ursula Von Der Leyen during a press conference on NextGenerationEU in June 2021. EPA-EFE/STEPHANIE LECOCQ


Major fraud allegations spur concern over misuse of EU Covid recovery funds


The European Public Prosecutor’s Office (EPPO) has found numerous cases of alleged misuse of European Union Covid pandemic recovery funds – worth billions of euros.

The EPPO expects cases of this type will increase in sync with EU pandemic subsidy expenditure.

On April 10, news broke that an investigation into one possible fraud of up to €2.5 billion was underway.

Investigators from the Greek Competition Commission are investigating three telecoms companies, five IT companies and two consultancies. EPPO has opened an inquiry into the same case.

Suspicions were raised after a complaint by another Greek company, which claimed that those 10 companies had apparently secured 600 lucrative projects, often through single tenders, allegedly despite them being significantly more costly than others.

The news came less than two weeks after probe titled “Resilient Crime”, an international large-scale investigation led by EPPO in Venice, resulted in dozens of property searches and seizures of goods along with 22 arrests across Europe.

An alleged criminal organisation is suspected of defrauding €600 million from the EU’s Recovery and Resilience Facility (RRF) for Italy. Alleged members are accused of using false documents and creating fake companies to illegally rake in lavish European subsidies.

On April 7, Tony Murphy, the President of the Luxembourg-based European Court of Auditors, said there was an “assurance and accountability gap” when it came to safeguarding the RRF.

That fund is “the centrepiece of NextGenerationEU – the EU’s plan to emerge stronger and more resilient from the current crisis”, according to the European Commission.

Murphy warned more such serious fraud allegations might come to light.

The European Auditors pointed to several challenges, “which does not bode well for the future”.

It referred to delays in fund “absorption, competition with cohesion funds” and concerns over “rushed” spending.

Furthermore, it said: “The Commission has, for the first time in history, borrowed on the financial markets on an unprecedented scale. However, this type of borrowing – once almost cost-free – has given way to soaring interest rates in recent years.”

While individual Member States are responsible for loan repayments, there seems little appetite for increased national contributions. The absence of a dedicated funding source adds urgency to the search for solutions, experts say.

In a 2021 report, the Court of Auditors revealed a sharp rise in single-offer governmental contracts in Greece, with 42.4 per cent of such contracts accepted with just one offer.

Austria, Denmark, the Netherlands and Slovenia also saw their single-bidding trends increase significantly. They fell in just three countries that year.

That means that, overall, the level of competition in public procurement in the single market has declined, meaning that the RRF goes against most of the supposed competition-enhancing regulation of the past decade.

On March 1 this year, EPPO warned in its annual report for 2023 that “serious organised crime continues to feast on EU revenue”.

“By the end of 2023, EPPO had 206 active investigations relating to the first NextGenerationEU funding projects, with an estimated damage of over €1.8 billion,” it stated.

“This represents approximately 15 per cent of all cases of expenditure fraud involving EU funds handled by EPPO during the reporting period but, in terms of estimated damage, it corresponds to almost 25 per cent.

“This number can only increase, in the context of the accelerated implementation of NextGenerationEU funding. In 2023, EPPO also began to identify organised crime groups involved in this type of fraudulent activity.”

The post-pandemic economic recovery fund for the EU, initially valued at €723 billion, distributes grants and loans to the 27 Member States. Two-thirds of it is still to be disbursed.

The potential problems identified by EPPO echo warnings issued prior to the creation of the recovery fund.

The German Court of Auditors warned the RRF could lead to “a transfer union through the back-door”.

Dutch MEP Michiel Hoogeveen spoke of “a pointless and expensive financial transfer scheme”, warning of high bills to come.

Belgian MEP Johan Van Overtveldt, Belgian finance minister from 2014 to 2018, now Chairman of the European Parliament’s Budget Committee and a Professor of Economics at the University of Hasselt, noted that 70 per cent of the RRF funds were supposed to have been disbursed by the end of 2022 to promote recovery, which has not happened.

He highlighted that Europhiles such as MEP Guy Verhofstadt were calling to anchor the RRF structurally within the European budget despite the potentially high risks involved.

“Various bodies, such as [EPPO] … OLAF, Eurojust and Europol, have already issued detailed warnings about the increased risks of corruption, fraud and conflicts of interest linked to the EU’s recovery plan,” Van Overtveldt wrote at the beginning of 2022.

“The recovery plan’s resources which some countries will spend in the coming years are extraordinarily large,” he said.

“Moreover, to a large extent, the Commission is reliant on the co-operation of Member States themselves to control expenditure. This does not exactly look like a watertight approach.

“I sincerely hope that in a few years we will not be faced with half-baked results that have cost a lot of money”, he concluded.