DARK SIDE OF TRANSPARENT ECONOMY

The EU has long been criticised for failing to protect the funds it distributes to member states as subsidies and co-financing. Customs and VAT frauds cost Europe 30-60 billion euros annually. Losses from embezzlement, corruption and money laundering are estimated at another 500 million...

So far, the European Anti-Fraud Office (OLAF) has dealt with fraud and tax evasion investigations, but has been constrained by its inability to directly prosecute violations. Instead, it was forced to turn to the national authorities in the hope that they would take action.

For example, in 2017, OLAF accused the UK of allowing Chinese criminal gangs to systematically lower the value of goods imported into the EU for several years (since 2013). According to Brussels, frauds cost the EU more than 3 billion euros. However, the UK has not taken any action to curb fraudulent traffic and has not launched any criminal investigations.

But even if national authorities began to investigate cases of fraud with the EU budget, their powers were limited to national borders. And the European bodies, including OLAF, Eurojust and Europol, which did not have the necessary powers to conduct criminal investigations and prosecutions, could not assist them in this.

The issue of protecting the European budget from embezzlement became relevant again last summer, when the EU agreed on the largest financial package in its history (1.8 trillion euros). Of this amount, about a trillion euros is the EU budget for the next seven years, another 750 billion will be spent on rebuilding Europe after the coronavirus crisis.

Sovereignty under risk

Back in 2010, Eurojust (a body to coordinate the work of national judicial authorities) proposed the creation of European Prosecutor's Office as a possible solution to the problem of cross-border crimes in the EU. Discussions were hard and long, as many countries considered this a risk on their sovereignty.

However, there is an understanding that the national authorities are limited in their capabilities. Complex cases involving several states at once remain practically unsolved.

As a result, in 2017, 20 of the 28 EU member states approved the PIF directive on combating fraud in relation to the financial interests of the union, which declares the creation of a single European Public Prosecutor's Office (EPPO).

The EU member states were supposed to implement the PIF directive into their national laws by July 6, 2019, but this process has dragged on for a long time. Only on 6 July, 2021, EPPO will submit to the European Parliament a report assessing how effectively European countries have managed the implementation of the task. Currently EPPO is recognised by 22 of the 27 EU member states. Hungary, Ireland, Poland and Denmark have dropped out, and Sweden is set to join by 2022.

Urgent business

The approval of a candidate for the post of Chief European Prosecutor was also not easy. During the voting in February 2019, Jean-François Bonert of France was in the lead, but in October Laura Kövesi was approved.

The change had partly political and practical reasons. Once the chief prosecutor of Romania's National Anti-Corruption Authority, Kövesi has established herself as an uncompromising fighter against economic crimes, bringing cases against prominent politicians, judges and businessmen. Her origins are equally important because this neutralises possible accusations from Central and Eastern European countries that could be targeted by the EPPO.

Interestingly, powerful forces in the Romanian government and judicial system have been desperate to prevent Laura Kövesi from becoming the EU's first chief prosecutor. And even filed a case against her on "suspicion" of abuse of office.

Rights

The Kövesi team was supposed to start work as early as last year, but since 22 EU member states still delay the selection of prosecutors, the official opening of the EPPO office in Luxembourg took place only on June 1.

In addition to the Prosecutor General, the central office consists of two deputies (Danilo Ceccarelli from Italy and Andres Ritter from Germany). 22 European prosecutors (from 22 countries) have also been approved. They will monitor cases and approve indictments. In addition, 140 designated prosecutors will carry out on-the-spot investigations in the countries of their residence.

EPPO is tasked with investigating types of crimes affecting the financial interests of the EU, including income scams, VAT frauds (if it includes two or more EU member states, and if the amount of fraud is at least €10 million), money laundering from the EU budget. In addition, the types of crime include active and passive corruption, or misappropriation, affecting the financial interests of the EU, as well as participation in a criminal organisations, if the purpose of these activities was to commit crimes against the EU budget.

If EPPO experts in each case are convinced that there is sufficient evidence of the misuse of EU funds, the case should be handed over to the national courts of the country where the corruption actions took place. The EU Prosecutor General's Office itself has the right to choose which country best suits for investigating a cross-border case, and to transfer evidence there.

In addition to bringing criminal charges against suspects in courts in home country or another EU member state, EPPO will also have the right to seize assets and conduct searches.

First cases

One of the first cases to be considered by EPPO will be an identified conflict of interest involving the Czech Prime Minister Andriy Babis. Not only is he reported to violate the laws maintaining control over his business empire, which is actually managed by a trust fund, but he is also believed to use his powers to claim EU subsidies for his companies. Brussels has since stopped paying the subsidies and now demands a return of 11 million euros.

Andrei Babiš, the fifth richest person in the Czech Republic, has denied wrongdoing. He insists that in accordance with the Czech anti-corruption law, he transferred the Agrofert holding to two trust funds in February 2017, when he was still minister of finance. However, investigations have shown that he was still the beneficial owner of Agrofert.

European Commission has also filed a lawsuit against Germany, insisting that the country ensure the primacy of EU laws over national laws. In 2020, the German Constitutional Court ruled that the European Central Bank's stimulus package did not comply with German federal laws.

A German court is accused of putting German laws above the EU laws. This threatens the entire legal regime of the EU.

Sure enough, this is, first of all, a message to Germany to demonstrate that the observance of the judicial hierarchy must be taken seriously. But it is also a warning to other countries.

Germany's decision could prompt other countries, such as Poland or Hungary, which are also in dispute with Brussels over the priority of laws, to question the authority of the EU's high court and argue that national law should prevail over European.

EC shows that the law is the same for everyone, including for such key states as Germany.

Immortal mafia?

The first Prosecutor General of the European Union, Laura Kövesi, confidently declares that "there are no clean countries", while warning that although the EPPO will not solve the problem of corruption in all countries, it will better protect the EU money.

But she has to face several critical obstacles. First, five EU countries - Denmark, Hungary, Ireland, Poland and Sweden - chose not to participate in EPPO work. This significantly limits the possibilities of EPPO.

Secondly, it concerns insufficient funding to have an optimal staff. EPPO asked for 55 million in an annual budget and received 44. As Kövesi admits, “if the criminals have a Mercedes and you have to follow them on your bike, obviously they will have the upper hand.”

Third obstacle: prosecutors are more likely to face harassment and personal threats. In addition, Kövesi assures that lawsuits are imminent, claiming that the EPPO is exceeding its authority.

Fourthly, EPPO will actually operate in uncharted territory. In the absence of a unified EU criminal code for initiating criminal cases, it will have to observe the disparate laws and judicial systems of the member countries of the union. But here she may face opposition from those who consider her powers to be a violation of the national sovereignty of the EU countries.

Those who watched Eldar Ryazanov's film The Adventures of Italians in Russia remember the phrase ‘Mafia is immortal’. There was nothing national jurisdictions could do about it. Time will tell whether the supranational team of prosecutors will be able to refute this statement.