High time for EU bank to better tackle fraud and corruption in its investments

Last week, dramatic news came from Italy: a state of emergency had to be declared in Venice following dramatic floods – the city was engulfed by 1.87m high water levels.

One question now very much on the minds of those affected is why a much-vaunted multi-billion dollar flood protection scheme, known as the MOSE project, failed so dismally to keep the flood waters at bay.  Many blame corruption associated with the project, which was backed to the tune of EUR 1.5 by the EU through the European Investment Bank (EIB).

In 2017, eight people were found guilty of corruption in relation to MOSE, and nineteen more have plea-bargained. A case in point was the former Italian Infrastructure and Development Minister, Altiero Matteoli, who was judged guilty of corruption for accepting bribes up to millions in Euros from the President of Consorzio Venezia Nuova, the main promoter of the MOSE project.

The EIB’s investment in MOSE was the largest for a single infrastructure project ever approved by a public institution. Three loans were disbursed from 2011 onwards for a total amount of EUR 1.2 billion – even though, four years earlier, the Italian Court of Auditors had published a critical report questioning not only the spiralling costs of the project, but also other aspects linked to maladministration.

But what was seen in Italy as a major corruption scandal did not raise many eyebrows at a European level. Despite all the warnings and red flags, the EIB kept on supporting the project, and the EU anti-fraud office (OLAF) concluded that it “did not have a legal basis for launching an investigation” into EIB’s financial involvement.

This is not the only case of the EU turning a blind eye to alleged corruption in EIB-backed investments. At Counter Balance, we have investigated four cases, including the EIB’s support for Volkswagen and for projects in Italy and Slovenia. The sums involved are staggering. In these cases alone, some EUR 2.8 billion were funnelled into projects tainted by corruption.

However, the EIB remains unphased, despite its claim to have zero tolerance” for fraud and corruption. Back in 2016, for the first time the European Parliament called on the bank to “stop further loan disbursements to projects under ongoing national or European corruption investigations”. But no such action was taken by the EIB.

In the new report we are publishing today, we conclude that investments made by the EIB are wide open to abuse by fraudsters, money launderers and corrupt politicians.

Although, on paper, the EIB has procedures in place to reduce the risk of fraud and corruption, the bank’s policies are poorly policed and full of loopholes. In addition, under current EU law, the EIB is not even required to have anti-money laundering rules. Furthermore, when these rules are breached, the EIB’s internal rules cannot be challenged in courts because they are not enshrined in law.

The EIB is simply not up to the task of tackling fraud and corruption, and this significantly jeopardizes the credibility of European investments in and outside of Europe.

Therefore, urgent action is required to set a better framework for the EIB anti-corruption fight and to reinforce its internal anti-corruption mechanisms. Especially at a time when the EIB is likely to play a pivotal role in the European Green Deal, the European Commission, Parliament and the EIB shareholders (i.e. the Member States) need to take these issues seriously and strengthen the control over the use of public funds.

Fundamental reforms are needed if the EIB is to become more accountable, democratic and transparent, including a change of institutional culture. Establishing a firm grasp on corruption to ensure that public money no longer feeds corrupt systems both in and outside Europe is a vital first step.

[FULL REPORT]

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