COVID-19 is showing why a vaccine to stop the fraud of EU finances is needed ǀ ViewComments
For weeks, European leaders have been in search of money to protect their citizens and businesses from looming poverty as a result of the COVID-19 crisis. It is hard for them to admit, but based on past records, a significant part of that money will end up in corrupt networks. Out of the annual EU budget, 2% is lost due to inaction on fraud.
Cross-border VAT fraud, misappropriation of European funds, irregularities in agricultural aid; the list is long and the amounts are increasing. But the public interest has generally focused on fraud of the Cohesion Fund, which is easier to stigmatise since it is targeting Eastern countries and easier to ironise when it comes to negotiations over budget distribution in Brussels.
COVID-19 and the Cohesion Fund
In the midst of coronavirus crisis, the Cohesion Fund was the first financial instrument mobilised to redirect European budget to the medical, social and economic protection in our member states. It acquired a new meaning for European citizens.
In the post-coronavirus landscape, the cohesion budget will sustain the recovery of regional economies and pursue the convergence strategy that is needed for regrow Europe’s prosperity again. The Cohesion Fund was created to support relatively weaker economies – typically those in the East ones – to become functional within the single market, in order to offset inherent loss of market share to competing Western companies.
This role must be maintained without fraud distorting it.
However, the risks of abusing the funds are higher given our new normal. As we face the new economic reality of the coronavirus crisis, more flexibility will be applied to the spending of EU funds with local authorities having more leeway. Combined with weakened national economies and the shift of administrative resources away from financial monitoring, this can potentially lead to a rise in fraudulent use of EU funds.
The EPPO: a promising solution?
Whether it is with good intentions or not, the powers of national authorities to investigate financial crimes stop at national borders. The EU bodies - Eurojust, Europol and the EU Anti-Fraud Office (OLAF) - do not have the jurisdiction to carry out criminal investigations. Based on the recommendations of OLAF, the EU's leading anti-fraud body, national authorities manage to prosecute only 36% of European corruption cases, and less than 10% of the losses are recovered. An additional anti-fraud tool, the Cooperation and Verification Mechanism (CVM), is still applied to just one country – Romania – whose GDP represents only 1% of that of the EU.
To respond to pressure from member states asking for a common European approach to prosecution, a new institution, the European Public Prosecutor's Office (EPPO), is being set up. Each participating member state will be represented by delegate prosecutors who will coordinate investigations. This will enable more harmonious applications of the legislation and faster prosecutions.
In view of the increased risk of defrauding EU funding, it is timely that the EPPO becomes operational as planned in December 2020. However, there remains the issue of its fragmented jurisdiction. Indeed, the EPPO’s criminal prosecution powers apply in only 22 of the 27 EU countries. Either by referendum or by government decisions, Denmark, Hungary, Ireland, Poland and Sweden have opted out of enhanced cooperation in the field of justice and home affairs.
More money, more conditionality
It is still a matter of dispute as to whether the issuing of European funds should be conditional on the respect of the rule of law. Penalising governments without punishing populations would be a difficult exercise for the European Commission, as it would demand the introduction of complicated new tools and would potentially jeopardise the adoption of the next EU budget.
At the same time, it would be fair to make member states’ adherence to a credible system a condition for the disbursement of cohesion funds, allowing for the efficient prosecution of fraud. This accountability mechanism should include membership of the EPPO and acceptance of the CVM.
This conditionality will make “frugal” member states more confident in accepting higher budgetary commitments, as it would minimise the moral hazard of the misspending of funds by others. Moreover, it would be unfair to demand respect for the rule of law and impose the CVM for only some member states while allowing the others to evade the mechanisms that protect the integrity of European funds. Fighting corruption and fraud is also a matter of security, since the illicit proceeds of EU money are often used to finance international crime networks.
The obligation to recover misspent EU funds cannot be optional. We must not tolerate exceptions when it comes to such essential issues of common interest as financial robustness. The existence of prosecution-exempt havens where the EU is not allowed to intervene is a gift to criminal organisations. We shall have a clear picture of corruption and fraud in the EU once the EPPO becomes fully operational and starts its investigations. We should strongly counteract illicit use of the EU funds, wherever it occurs.
In future post-COVID-19 crises, we will need an anti-fraud antidote more than ever. I am convinced that our Hungarian or Polish friends will understand this obligation in order to keep the virus of corruption from destroying the EU's cohesion policy and the vitality of the European project.
- Clotilde Armand is a Member of the European Parliament for the Save Romania Union party and a member of the Renew Europe parliamentary group
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