The EU faces a “big risk” of abuses in its €800bn post-pandemic recovery fund because some countries refuse to sign up to a common transactions database, the bloc’s anti-fraud chief has warned.
The gap in central oversight could make it harder to monitor the record financial flows even as Brussels builds up other parts of its anti-corruption armoury, Ville Itala, director-general of the European Commission agency Olaf, told the Financial Times.
His comments highlight the anxiety in EU headquarters over the drive to prevent misuse of the landmark funding bonanza agreed by member states to help the 27-member bloc repair economic damage wrought by the pandemic.
“It’s such a huge amount of money — prevention is important,” Itala said in an interview. He said he regretted the decision of some member states to block attempts to require the use of a longstanding EU-wide financial oversight and risk-assessment mechanism known as Arachne.
“We see that it’s a big risk, that’s for sure. Because we don’t have the same possibilities to follow the money flows and the information — and find the final beneficiaries.”
The commission this week kicked off its borrowing programme aimed at raising Next Generation EU money with the issuance of €20bn of debt, a step towards its goal to spend €800bn to help relaunch Covid-19 battered economies.
Brussels has also begun signing off member states’ recovery and resilience plans. On Wednesday it gave the green light to bids from Spain and Portugal. The Next Generation EU programme comes on top of the bloc’s €1.2tn seven-year budget.
Itala said tough oversight at both national and EU levels was essential to ensuring money was not lost to waste and fraud, given previous scandals over misuse of EU funds. He said the lack of a complete, pan-union data set would make it more difficult to analyse the ultimate recipients of money behind what might be complex layers of companies and transactions in more than one jurisdiction.
“We can do it but it’s much, much more complicated,” said Itala, a Finnish former police officer. “And it’s much more work to do it if you don’t have these IT tools to follow through to the final beneficiary.”
More than 20 member states use Arachne to track existing EU cohesion funding, and many are expected to use it voluntarily for the Next Generation EU spending, but under current rules they will not be required to do so. The tool is not used in Germany, Poland, Sweden, Denmark or Cyprus, as some capitals prefer to use their own internal systems.
However, Brussels believes it has acquired other new, stronger weapons that can be used to monitor recovery fund money and tackle misuse, including the kinds of conflicts of interest at the heart of previous notorious cases. Member states are to be required to set up national systems to record and report the ultimate beneficiaries of EU funds disbursed under the recovery fund programme, as Brussels holds them to more stringent requirements.
Valdis Dombrovskis, commission executive vice-president, told the FT this year that Brussels had put in place a “robust system”, noting that the commission was both policing national “control systems” for spending the money, and applying its own checks. He added that Brussels was ready to suspend payments if there were signs that a national government was not delivering on reforms or not putting cash into pre-agreed investments.
Spending scandals in recent years linked to European funds have included the EU anti-fraud office calling on Hungary to repay money for a metro line because of fraud and corruption concerns.
Itala acknowledged that EU monitoring of recovery fund spending faced an extra challenge because it is happening at the same time as the launch of the European Public Prosecutor’s Office. The new body has powers to pursue criminal cases and is an attempt to close a gap created because Olaf has authority only to recommend rather than to require member states to launch prosecutions.
Itala said Olaf had established good relations with the prosecutor’s office and was passing it more than 150 open investigations, or about a quarter of its existing cases. “It’s very important to have the EPPO,” he said. “And if we combine our strength together, we can get much better results.”