Subsidised and defrauded. Visegrad EU funds under the eye of OLAF

For over twenty years, the European Anti-Fraud Office (commonly known as OLAF, from the French: Office européen de lutte antifraude) has been protecting the EU’s financial interests, investigating fraud, corruption, and serious misconduct within the Union’s budget and institutions. The office has also developed an anti-fraud policy for the European Commission. 

But while OLAF looks into a wide range of wrongdoings, from misconduct in public procurement procedures, to customs fraud and document forgery, very little is publicly known about the impact of its investigations in the Visegrad region, where the fact of EU fund embezzlement has been common knowledge since the countries joined the bloc in 2004. OLAF has no judicial powers to oblige national law enforcement authorities to act upon its follow-up recommendations, and as the region’s governments have shown, its advice is not always taken seriously enough.

Between 2014-2018, OLAF concluded almost 1200 investigations across the EU and recommended that the European Commission recover over €6.9 billion to the EU budget. It issued almost 1700 recommendations for judicial, financial, disciplinary and administrative actions to be taken by relevant authorities in respective member states and the EU. When OLAF was asked, however, about the extent and nature of these fraudulent activities in the Visegrad region, it was reluctant to provide any specific information to the public.  

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Some data on the countries can be found in the OLAF yearly reports: One from 2018 states that altogether 95 of the concluded investigations in the areas of European Structural and Investment Funds and Agriculture carried out between 2014 – 2018 concerned the Visegrad region countries — that is, Poland, Hungary, Czech Republic and Slovakia.

The total financial recommendations to recover EU funds made by OLAF in those four years was 0.45 percent of payments. For some of the Visegrad region countries, those numbers are lower. OLAF has no competence to legally demand a refund, it only issues recommendations. The investigation thus remains in the hands of the state authorities of the individual countries. The average OLAF investigation rate in the EU between 2012 and 2018 was around 36%.

 

Investigace.cz reporters and their colleagues tried to learn more about the specific cases that were investigated in each of these countries from both OLAF and from national agencies. The OLAF investigations we were able to learn more about often concerned misuses of funds earmarked for agriculture. We found that the nature of the irregularities were similar across the Visegrad countries: using fake documents or fake expense certifications when applying for the funds, overinflating the cost of services and equipment in public tenders, applying for tenders with no intention of actually realising the projects. 

Fictitious bids for millions

In Poland, several cases are being investigated, which have also been dealt with by OLAF and in which it has recommended that the European Parliament recover unduly used grant amounts.

  • What is PARP?

Poland has several offices that should help OLAF detect fraud, including the Public Funds Audit Department (DAS) at the Ministry of Finance, as well as the Polish Agency for Enterprise Development (PARP). DAS has been responsible for cooperating with OLAF for three years. From information obtained by VSquare, the office appears to have launched investigations “to protect state interests” regardless of OLAF’s involvement.

PARP – a key institution that grants EU subsidies to small and medium-sized companies, also has a role in overseeing how EU funds are spent. Since 2010, the agency has submitted 74 notifications to the Prosecutor’s Office that warn that fraud may have taken place in a given grant or by a company overseen by the office.

According to the Prosecutor’s Office, PARP employees were misled by the beneficiary’s representative in regards to tender procedures and their decisions were influenced by unreliable documents.

Other cases being investigated by Polish prosecutors involve alleged breaches of tender conditions, and the organising fictitious bids.

Over the past 15 years, Poland received EUR 163 billion from the EU, and. the sum of the potentially defrauded funds is therefore very small. But estimations of how much in EU funding has been defrauded typically leave out cases where those accused of fraud were acquitted or otherwise let off the hook by judges. According to VSquare’s analysis of OLAF reports, news reports, and court files, the total amount that has been defrauded from the EU by Polish beneficiaries could reach into the hundreds of millions of euros. What is the precise number? That remains unknown.

Slovakia: The Countess and the Farmers

The European Union directs a massive amount of money towards Slovakia in the form of agricultural subsidies. These funds are managed and redistributed by the Agricultural Paying Agency (APA), an organisation with an annual budget of more than half a billion euros at its disposal. This kind of money attracts not only farmers and agricultural companies, but also people with more questionable intentions.

Ľubica Rošková has been nicknamed “The Countess” by those in Eastern Slovakia familiar with her style of business. The 66-year-old psychologist started her business career in 1992, and later became involved in politics, becoming a member of parliament for  Smer-SD, the political party led by Robert Fico, Slovakia’s former long-time prime minister.

Following an unsuccessful 2016 election, Rošková returned to business, this time in the field of agriculture. This is where she started making money, and trouble.

The misuse of agricultural subsidies is a huge problem in Slovakia. There are around 6,000 farming subjects in Slovakia, with an estimated 50% having applied for subsidies. The average subsidy offered for a hectare of land is 240 EUR.

In November 2016, “The Countess” invested 6640 EUR into a company called Gard and renamed it Agro Porúbka. The firm, owned by Rošková and her associate Jozef A (whose full name is redacted as he is currently under  criminal indictment – VSquare note), is based in Eastern Slovakia and boasts an impressive portfolio covering businesses ranging from car rentals, real estate, administrative services, translation services, and forestry and agriculture. Though the company’s total net worth isn’t particularly high — in 2018 its income reached EUR 165 464 — its story has become extremely high-profile  in Slovakia.

Both owners are now under criminal investigation. The National Criminal Agency (NAKA) is looking into the accusations of subsidy fraud and damage of financial interest of the European Union.

“People deserve certainties”, says an official motto of SMER party, ruling political party for last 12 years in Slovakia. Ľubica Rošková was an unsuccessful candidate Credit: Official SMER party Facebook profile

Company of “dead souls”

In 2016 and 2017, Agro Porúbka allegedly illegally obtained agricultural subsidies worth EUR 150,000 . In 2017, these subsidies would have been for a total area of only 430 hectares spread across 63 different locations in eastern villages and towns, which, given that Agro Porúbka officially had only seven employees that year, would have been an impressive feat.

The company’s suspicious activites were brought to light by a reporter at Slovakian newspaper Denník N. Later, the Agricultural Paying Agency control confirmed the journalist’s findings. The company is still under investigation, though the agency is already calling for the return of 150,000 euros that were paid out in EU subsidies. Though the amount isn’t large, it magnifies the way in which EU funds have been abused in Slovakia.

The APA control also confirmed that Agro Porúbka was not farming on the lands that it received the subsidies for.

The explanation for how Agro Porúbka managed to receive subsidies lies in the way the system is designed. The redistribution of EU agricultural funds is based on a system of trust: farmers are not asked to provide evidence of their ownership of the land in question.  If a fraudster connects a few small lands into a larger one and uses them to apply for subsidies, nobody will immediately find out, not even the real owners of the land. The APA will only investigate land claims if two different entities ask for subsidies for the same plot of land.

In its 2018 report, OLAF wrote that in the areas of European Structural and Investment Funds and Agriculture, 1,649 fraudulent and non-fraudulent irregularities were detected in Slovakia for the 2014-2018 period, comprising of 19.29% of all of the EUpayments (the highest proportion among all EU countries. Spain came in a distant second place with 3.30% of payments being impacted by irregularities.). 14 investigations were concluded with recommendations from OLAF and the request that 2.29% of funds be returned.

And the winner is…

Hungary tops the list of countries for most OLAF recommendations for the recovery of EU funds between 2014 and 2018. In these four years, OLAF concluded 52 probes into misuse of funds and recommended that the EU Commission to recover 3.84 percent of payments made to Hungary under the bloc’s structural and independent funds and agriculture funds program.

The Hungarian fraud scheme as described by OLAF

Reacting to criticism from the European Parliament regarding the fraudulent use of the funds, Attorney General of Hungary Péter Polt insisted in 2018 that the country had launched investigations based on OLAF’s recommendations, disclosing a list of all such legal proceedings since 2012.

Atlatszo journalists researched these individual cases and found that some of them were originally reported by media outlets and investigative journalists, only later evolving into OLAF investigations and, afterwards, national criminal cases.

Most of the cases listed by the Attorney General are still open and ongoing. The charges revolve around similar themes, such as using fake expense certifications, inflating the price of equipment to be covered in public tenders. In some cases the applicants did not even have the intention to realize the venture and continued to mislead inspectors.

Don’t touch my son-in-law

Former German MEP Ingeborg Grassle, who chaired the parliamentary committee overseeing the use of EU funds, warned in September 2019 that Hungary “has a problem with fraud, with corruption, with public tendering and with the fact that the justice system doesn’t want to deal with crimes, perhaps because there are people protecting the criminals there”. One of cases that is often mentioned in respect to these issues concerns Viktor Orban’s family.

At the beginning of 2018, OLAF sent the result of two years of its work to Hungarian authorities, recommending legal action over “serious irregularities” and a “conflict of interest” connected to Elios Zrt., a company that won contracts to install new street lights in towns across the country in 2011-2015. The 35 contracts investigated by OLAF are worth €40 million and were financed by EU funds.

During the time of these contracts, István Tiborcz, Orban’s son-in-law, co-owned and managed the company. Tiborcz is now one of the 100 richest people of Hungary, and at 33 years of age is also the youngest of the richest.

István Tiborcz, Orban’s son-in-law, one of the 100 richest people of Hungary. Source: Facebook profile István Tiborcz

The company owned by Tiborcz has won many other public tenders that haven’t been scrutinized by OLAF. Elios worked for universities, stadiums, the state-owned electricity company, and a railway company as well. Atlatszo researched all public tenders won by Elios and found that 84 percent of the company’s public procurement income between 2010 and 2016 came from the European Union funds.

The details of how Elios operated to win the public lighting tenders were revealed in official letters sent by OLAF to the towns that had contracted Elios to install new street. Most of these letters became public after Atlatszo filed a freedom of information request with each municipality in question.

These documents make it clear how the public tenders were rigged: tendering criteria changed at the last minute, competing offers were written by the same person, the life cycle of the LED lamps was inflated, personal connections were revealed between the subcontractors and the auditing company, and in some places Elios was the sole bidder for the contract.

In February 2019, the Hungarian government decided not to submit  invoices relating to Elios’ public lighting modernisation projects: in other words, no EU funds would be used to pay the company. Instead, Hungarian taxpayers are footing the bill. Transparency International Hungary said in a statement that “by this move the Hungarian government admits on the one hand the involvement of the Elios company in a seriously fraudulent tendering practice, while on the other hand acts as an accomplice by letting the suspected corrupt conduct go unsanctioned”.

This move means that OLAF no longer has any right to investigate the matter.

The Hungarian police has already closed down two investigations regarding Elios, citing a ’lack of crime committed.’ According to criminal law experts contacted by Atlatszo, the police should have concluded that what happened was a misappropriation of funds and state budget fraud committed by a criminal organization.

The text is based on original stories from our partner organisations. Click to read the full story from Hungary, Slovakia and Poland.

By Katalin Erdélyi, András Becker, Brigitta Csikász, Tamás Bodoky (Atlatszo.hu), Daniel Antoni (ICJK), Mariusz Jałoszewski, Konrad Szczygieł (Fundacja Reporterow)
Featured graphics by Lenka Matoušková
This text was financially supported by GACC (The Global Anti-Corruption Consortium) aimed at the Visegrad countries. Member centers Átlátszo  and Direkt36 from Hungary, Fundacja Reporterów from Poland, Ján Kuciak Investigative Center from Slovakia and investigace.cz from the Czech Republic are working on the project.