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EU failing to keep funds away from fraudsters, say auditors
European Court of Auditors

EU failing to keep funds away from fraudsters, say auditors

by John MONAGHAN 2 min. 23.05.2022 From our online archive
Just a handful of firms and individuals blacklisted for financial crime have been barred from applying for EU funding, ECA report finds
The European Court of Auditors in Luxembourg
The European Court of Auditors in Luxembourg
Photo credit: ECA

Differences across EU countries are hindering attempts to bar firms and individuals involved in financial crime from obtaining EU funding, with just a handful banned to date, the bloc’s Luxembourg-based budget watchdog said on Monday. 

The EU Commission has blacklisted companies and individuals for offences such as fraud, money laundering, tax evasion and corruption since 2016, through the early detection and exclusion (EDES) system.

However, less than 5% of those named on the EDES list at the end of 2020 had been formally excluded from applying for financial assistance from the bloc, according to a report by the European Court of Auditors.

“Blacklisting can help ensure that EU funds do not fall into the wrong hands, but it is not being used effectively: we have a patchwork of different approaches to exclusion at EU and member states level,” said Helga Berger, the ECA member responsible for the audit.   

“On the other hand, relevant data is either not available or not used in compiling the EU’s blacklist, which undermines its usefulness and deterrent effect. A system is only as good as the information fed into it,” she added.  

The vast majority of funds distributed by the EU – through agricultural support and the cohesion policy, aimed at investing in less-developed regions – is not even fully covered by the blacklisting mechanism, the ECA said.

Of the €150 billion paid out in EU funds since 2016, €111 billion comes under shared management between the bloc and national governments, which are not required to set up databases of suspect individuals and companies.

At a national level, none of the four countries examined during the audit – Portugal, Italy, Poland and Estonia – had created a fully operational exclusion system for EU funds, the auditors found.

The EU’s rate of barring such companies and individuals is tiny compared to the US authorities and the World Bank, with the Commission’s attempts to gather information frustrated by legal and technical hurdles in accessing national business registers or criminal records, as there are no EU-wide lists, the auditors said.

The Commission is also far too dependent on the “word of those applying for grants or offering services”, the auditors noted, adding that the EU’s executive arm “simply accepts their claims without vetting them”.

For funding areas under shared management between the EU and national governments, a variety of laws means companies may be treated differently in separate countries, undermining the whole purpose of the blacklisting system, the ECA said.

The implementation and oversight of the existing system must be strengthened and extended to EU funds which are shared between the bloc and national governments, the auditors concluded.

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