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Standing Up To State Capture: Innovative Methods to Investigate Fraud and Corruption

Key speakers

Unlike in the majority of EU member states, in Bulgaria and Romania the agricultural sector still has a major impact on the economy. The value added of the sector as a share of GDP in the two countries is more than twice as high as the average in EU28. Romania and Bulgaria remain the two countries in EU with the highest share of agriculture in their national GDP accounts. As such, fraudulent irregularities and corruption-related activities in the EU financing of Bulgarian and Romania’s agricultural sector present a serious threat to the financial interests of the EU. At the same time, the high concentration of land ownership, particularly in Bulgaria, together with persistent levels of irregularities and corruption in the procurement process, puts the national interest in agriculture at risk of being captured by private interests. This may lead to detrimental effects for economic life, opposite to those intended by the Common Agricultural Policy (CAP) funding rationale.

On 13 and 14 of September 2018, the Center for the Study of Democracy organised a high-profile international conference with the support of the European Anti-Fraud Office (OLAF) and the Open Society Initiative for Europe. The event brought together academics, practitioners and innovators to discuss methods for assessing and measuring the state capture phenomenon and showcase the current and up-and-coming tools and techniques in detecting, preventing and investigating fraud and corruption in the EU funding for agriculture. The conference also tackled the potential impacts of organised crime and the state capture phenomenon on the rural and agriculture sectors in the EU and explored key aspects of the risks for the EU’s financial interests posed by white collar crime in the agricultural sector.

In his opening remarks CSD Chairman Dr. Ognian Shentov stressed that the state capture phenomenon is a key political issue which needs to be addressed via a set of specialised tools such as a State Capture Index. He also pointed out that the fraud in the agricultural sector both in Bulgaria and Romania remains a serious problem that could be tackled through institutional cooperation and technological innovations. Amira Szönyi, Head of Unit B4 Agricultural and Structural Funds II at OLAF, drew attention to EU’s Common Agricultural Policy (CAP) and its diverse goals. She underlined that frauds with agricultural funds pose a tangible risk to CAP’s successful implementation and noted the importance of bringing together experts with different backgrounds who could exchange knowledge, opinions and expertise to better address EU funds fraud issues.

Mariana Prats from the Organisation for Economic Cooperation and Development (OECD) offered an overview of the policy capture practices and noted that policies do not always reflect the most pressing concerns of citizens. The resultant institutional asymmetry is an important factor in facilitating the decrease in public trust in government. Ms. Prats underlined the need for legislation regulating party financing and reducing the policy gap in lobbying regulations. Tihomir Bezlov, Senior Fellow at CSD’s Security Program, focused on the modus operandi of fraudsters exploiting EU agricultural funds in Bulgaria. A main pattern is to circumvent the Euro 300,000 limit on subsidy for farmers. Large land owners and operators in Bulgaria engage in complex schemes to parcel their lands into smaller plots in order to drain the EU direct payment mechanisms. This practice contributes to hyper-concentration of agricultural land, weaker competition and a decline in productivity. The President of the Romanian NGO Expert Forum Sorin Ionita, pointed out that most countries in Southeast Europe put more trust in EU, rather than in national institutions, but still vote for clientelist policies in times of crisis. Mr. Ionita stressed the lack of powerful civil service and independent judiciary leading to the failure of democratic policy mechanisms.

Dr. Alexander Gerganov from CSD’s Economic Program introduced a quantitative assessment of state capture in Italy, Bulgaria, Romania and the Czech Republic. He underlined that the problem is rooted in the combination of poor governance, the monopolisation of key business sectors, and enablers such as media capture. Valentina Dimulescu from the Romanian Academic Society presented a recent study conducted in Romania, demonstrating that despite its evident economic growth, the country is still affected by pervasive corruption and overall poor governance. She gave examples from an analysis of public procurement in the infrastructure and construction sectors in order to highlight how anti-corruption efforts have not yet yielded the expected results. Nicola Capello from the Research Centre on Security and Crime in Vicenza presented the results of a study on state capture in Italy, which assesses the risk of external pressure on Italian institutions, as well as a case study of the MOSE project in Venice – a local example of state capture and its financial implications. Dr. Vit Simral, Lead Researcher at the University of Hradec Králové analysed the capture of key economic sectors in the Czech Republic such as agriculture, the pharmaceutical industry and energy. He emphasised the lack of regulations on the “revolving door” phenomenon as well as on conflict of interests.

In her presentation, Amira Szönyi introduced OLAF’s mission and several case studies detailing the most common corrupt and fraudulent practices involving EU funds. She stressed the importance of a more effective verification of market prices, transparent ownership structure, as well as improved legal definitions in the fight against fraud and corruption in the EU funding for agriculture. Dr. Philip Gounev, Deputy Minister of Interior of Bulgaria (2013–2017), presented a mapping of corruption processes upon which a comprehensive anti-corruption policy design could be based and highlighted the main components hampering anti-corruption measures, most notably the lack of public pressure. The Romanian investigative journalist Atilla Biro (Rise Project) showcased various tools and databases that may be used by both researchers and law enforcement officer and shared some of the challenges in corruption investigation, notably off-shore companies. He highlighted the complications in collecting corruption evidence because of the need to prove both corrupt acts and the corresponding laundered money.

The issues of detecting and investigating fraud and corruption in the EU funding for agriculture were discussed by Col. Amedeo De Franceschi, Head of the Carabinieri Command Office for Agri-Food Protection in Rome, who described the recent technical improvements in the fight against agri-food crime, notably document and scientific traceability, the development of database, GIS and remote-sensing technologies. Andrei Atila Luca Chendi, Director at the Control Directorate at DLAF, Romania’s Fight Against Fraud Department, stressed the need for prevention, while insisting that legislation remains the most effective tool for combating fraud with EU funds. He highlighted insufficient investigative authority as a main obstacle to successfully bring EU funds fraudsters to justice. Andon Tashukov from the Anti-Fraud Coordination Service (AFCOS) of the Bulgarian Ministry of Interior underlined the main constraints to collecting evidence in both spot checks and digital forensic operations, as well as the need for cooperation between national and EU institutions in order to carry out effective investigations. Brendan Quirke, Senior Lecturer at the Manchester Metropolitan University drew attention to the structural problems undermining the fight against corruption and fraud, which are rooted in the fragmentation of both skills and knowledge, as well as in the relations between national administrations and EU institutions. He insisted that the relations between OLAF and AFCOS should be more horizontal.

Focusing on public procurement, Ágnes Czibik, Managing Director of the Budapest-based Government Transparency Institute, demonstrated the use of big data analysis in developing corruption indicators. She maintained that such indicators may be used for risk assessment or for setting up automatic compliance checks in public procurement procedures. The Secretary General of the Romanian National Integrity Agency Silviu Ioan Popa introduced PREVENT, an IT tool designed by the agency to identify and prevent conflict of interests by detecting connections and relationships in public procurement through analysing a number of variables, including previously held positions in the administration. Dimitar Dimitrov, Director for Anti-Fraud at the Bulgarian State Fund Agriculture presented the structure and activities of the Anti-Fraud Directorate, the legislative changes that would increase anti-fraud effectiveness, and the main IT tools and databases used to investigate fraud and corruption in EU funding for agriculture. Radu Nicolae from the Romanian Syene Centre for Education gave an overview of the deficient structural processes in the agricultural sector in Romania, which act as enablers for tax evasion and corruption. He maintained that an agricultural cadastre needs to be implemented in Romania in order to facilitate combatting fraud, corruption and abuse in the sector.

Going on to discuss the role of statistics, high-tech and remote sensing technologies, Francesca Tortifrom the Text and Data Mining Unit of the Joint Research Center (JRC) presented statistical tools such as THESEUS and WebARIADNE aiming at the identification of anomalies in the trade of goods between state members and third countries, as well the “fair price” concept developed by the European Commission for precise estimates of the price of imported products. She drew attention to some trade volume monitoring methods to detect potential misdeclaration of origin. Kamen Iliev, Director of the European Association of Remote Sensing Companies (EARSC) and General Manager of TAKT-IKI Ltd. explained the more recent innovations in satellite and EO technology such as thermal mapping and Hyperspectral along with their possible applications in the field of the anti-corruption and anti-fraud prevention and investigation. Dan Nica, irregularities officer at the Control and Anti-Fraud Directorate of Romania’s Agency for Rural Investment Financing (AFIR), dwelt on the IT tools used by AFIR to detect fraud and anomalies, namely the digitalisation of application and payment claims, applicant’s automatic threshold verification, and project mapping. Mr. Nica also stated that online access to government databases and registries is a great facilitation to the agency’s daily activities. Sergio Gomez de Rozas, Head of the Audit Area II at the Spanish Agrarian Guarantee Fund O.A. (FEGA) described the Spanish approach in identifying and preventing fraud in the agricultural sector based on the specific administrative and political structure of the country He focused on the use of GIS and remote sensing technologies in identifying parcels and lands under direct payments.

Dr. Christopher Brewster, Senior Scientist at the Data Science Department of the Dutch research institute TNO, gave a comprehensive overview of the challenges and opportunities of blockchain in the agricultural sector. He highlighted several aspects wherein blockchain may have a potential fraud and corruption diminishing role, such as in document management. Tomáš Pošepný, data analyst at the Czech company Datlab, presented the results of a longitudinal study on the presence of companies established in tax havens, which enjoy much less stringent competition and operate with higher profit margin in public procurement bids in the EU. He stressed the evident risk for tax evasion, but also for potential conflict of interests. Paul C. Johannes, member of the Project Group on Constitutionally Compatible Technology Design at the University of Kassel, explained the main overlapping elements of fraud prevention and fraud detection before introducing tools such as INSPECT for financial fraud, and LiDaKrA. He presented the overall legal framework within which innovative technologies such as blockchain must operate in order to be compliant with current EU requirements. Bozhidar Bozhanov, founder and CEO of the Bulgarian company LogSentinel, offered an overview of the potential of blockchain technology in the fight against fraud, highlighting its strengths in guaranteeing data integrity. He argued that if blockchain cannot address the main problems of fraud, it could help in protecting the alteration documents and measurement-related data. He introduced the fraud detection tools Hyperledger and Logsentinel, also stressing the high prevention potential of such technology.

During the International Conference "Standing Up To State Capture: Innovative Methods to Investigate Fraud and Corruption in EU Funding for Agriculture", 13-14 September 2018, Sofia
(L-R): Tihomir Bezlov, Senior Fellow, Security Program, Center for the Study of Democracy, and Mariana Prats, Public Sector Integrity Division, Public Governance Directorate, Organisation for Economic Cooperation and Development (OECD), Dr. Ognian Shentov, Chairman, Center for the Study of Democracy, Amira Szönyi, Head, Unit B4 Agricultural and Structural Funds II, Directorate B Investigations II, European Anti-Fraud Office (OLAF), European Commission, and Dr. Alexander Gerganov, Senior Analyst, Economic Program, Center for the Study of Democracy
(L-R): Sorin Ionita, President, Expert Forum, Bucharest, Tihomir Bezlov, Senior Fellow, Security Program, Center for the Study of Democracy, and Mariana Prats, Public Sector Integrity Division, Public Governance Directorate, Organisation for Economic Cooperation and Development (OECD)
Valentina Dimulescu, Public Policy Researcher, Romanian Academic Society, Bucharest, Nicola Capello, Researcher, Research Centre on Security and Crime, Vicenza, and Vit Simral, Lead Researcher, University of Hradec Králové, Czech Republic
(L-R): Mariana Prats, Public Sector Integrity Division, Public Governance Directorate, Organisation for Economic Cooperation and Development (OECD), Dr. Atanas Rusev, Coordinator, Security Program, Center for the Study of Democracy, and Amira Szönyi, Head, Unit B4 Agricultural and Structural Funds II, Directorate B Investigations II, European Anti-Fraud Office (OLAF), European Commission

This conference was funded with the European Union’s HERCULE III Programme.

The content of all presentations during the event represents the views of their authors only and is their sole responsibility. The European Commission does not accept any responsibility for use that may be made of the information presented during the conference.

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