A €12.7 million bicycle import fraud
Bangladesh is the third-largest exporter of bicycles to the EU, and Bangladeshi bicycles are exempt from EU customs duties. However, in order to benefit from this exemption, bikes from Bangladesh must meet strict EU criteria on the origins of the components used in making the bike and the value added. In short, the bikes must be sourced and manufactured in Bangladesh in order to qualify for the customs exemption.
OLAF received information alleging that a Bangladeshi manufacturer might have been circumventing these strict criteria. It was alleged that many of the component parts originated from China, so much so that the bike itself should be considered to be a Chinese bike and therefore not exempt from EU customs duties. During the investigation, OLAF established that the application documents submitted to obtain certificates of Bangladeshi origin contained inaccuracies concerning the origin of certain parts of the bicycle, namely the frames, front forks, handlebars and rims. It transpired that many of these parts originated in China. As a result, 416 843 bicycles had to be relabelled as of Chinese origin and were therefore subject to the payment of duties.
This fraud cost the EU budget €12.7 million in lost revenue. OLAF sent financial recommendations for the recovery of these amounts to six countries – Belgium, Denmark, Germany, the Netherlands, Poland and the United Kingdom.
Tobacco smuggling and counterfeiting
One feature of OLAF’s work is the continuing battle against cigarette smuggling and counterfeiting.
In 2021, OLAF’s operations led to seizures of 437 million illicit cigarettes, including 93 million cigarettes smuggled into the EU, 253 million cigarettes impounded outside its borders and 91 million cigarettes produced illegally at sites across the EU. Information uncovered by OLAF helped lead to the confiscation of 372 tonnes of raw tobacco that was destined for the illicit production of cigarettes. Also in 2021, OLAF continued to be active on waterpipe tobacco smuggling and was able to identify suspicious consignments of over 60 tonnes of waterpipe tobacco.
These seizures saved EU Member States an estimated €90 million in lost revenue.
‘Fishy’ rural development projects
In this case, OLAF looked into information regarding a suspected illegal agreement by three companies to defraud two fisheries projects in Slovakia. In the course of its investigation, OLAF was able to reconstruct the bigger picture of the fraud scheme and to link the three companies concerned to an additional 26 rural development projects.
In each instance, OLAF reconstructed how the group manipulated procurement processes in favour of a member of the group and inflated the prices of the goods and services supplied to make illicit profits. In total, the group defrauded the EAFRD and the European Fisheries Fund of €4.7 million over a period of 5 years.
OLAF recommended full financial recovery on each project. It also recommended that the competent judicial authorities address potential infringements of the national criminal code involving subsidy fraud, manipulation of public procurement and damage to EU finances.
€330 million for pensions? But not from EU funds
Following an exchange of information with the Italian Court of Auditors, OLAF discovered that an Italian region had earmarked over €330 million from the European Social Fund (ESF) and the European Regional Development Fund (ERDF) for a social assistance scheme for low-income pensioners. The initiative taken by the region was intended to last 2 months, which just happened to coincide with the date of regional elections. Further suspicions were raised when it was confirmed that the regulations governing the use of ESF and ERDF funds did not contain provisions allowing the income of older people in receipt of pensions from national social security systems to be increased.
OLAF’s investigation made clear that the measure that was to be financed by the region consisted of granting economic support to older people in receipt of social pensions, social allowances or old-age pensions amounting to less than €1 000 per month. In a letter sent to OLAF, the region explained that the scheme had been amended several times and that the amount allocated to low-income pensioners had been reduced to EUR 142 million. The region also specified that it no longer intended to finance the initiative with either ESF or ERDF funds but instead using national funds. However, subsequent OLAF checks found that the original notice promoting the scheme remained on the region’s official website, stating that income support for pensioners was being financed by the ESF and the ERDF and still quoting the original figure of over €330 million.
Given that the amount earmarked by the region to support low-income pensioners was not eligible for ESF or ERDF financing and that the original scheme was still advertised on the region’s official website, OLAF concluded that there was a high risk that the amounts paid to beneficiaries would come from either ESF or ERDF funds. Consequently, OLAF sent a financial recommendation to the Directorate-General for Employment, Social Affairs and Inclusion of the European Commission that it should undertake all appropriate measures to prevent the amount of €331 067 557 from being unduly spent.
Clean drinking water in Chad
OLAF uncovered fraud that had occurred during the building of an approximately 20-km-long drinking-water supply pipeline connecting wells to a reservoir in the Republic of Chad. Two contracts fully financed by the European Development Fund had been awarded in connection with this project in 2014.
OLAF found that the pipeline measured 250 mm in diameter, instead of the required 400 mm, thus resulting in higher operating costs and meaning that the capacity of the grid would not continue to satisfy needs, given the expected growth in the population around the areas served by the pipeline. Documents had been forged to cover this up. To make matters worse, the water reservoir collapsed in April 2020 before it could even be used. The investigation revealed that concrete of suboptimal quality had been used in the construction of the reservoir, which may well have been one of the causes of its collapse. The technical assistant in charge had failed to carry out the required controls, which facilitated or even triggered the fraud. OLAF also found other irregularities committed by the construction company, the technical assistance team and by at least four individuals.
OLAF recommended the recovery of nearly €1.7 million.
EU staff investigations
OLAF has a unique mandate to carry out internal investigations into the EU institutions, bodies, offices and agencies in order to fight fraud and corruption.
Undue child allowance and unauthorised external activities
OLAF opened a case to investigate suspicions of fraud in relation to an EU staff member who had allegedly engaged in undeclared external activities and received undue child allowance on the basis of false information that the person concerned had submitted to an EU institution. OLAF concluded that the staff member had, unbeknown to the institution, assumed the roles of managing director, founder, owner, board member and global legal director in three companies. OLAF also established that the individual had unduly received child allowance, by means of submitting false information in an effort to mislead the institution as to the true duration of their relationship with their former partner.
OLAF closed the investigation with a recommendation that the institution take appropriate disciplinary action against the individual, sent its findings to the competent public prosecutor to begin judicial proceedings for fraud and issued a financial recommendation that the child allowance unduly paid to the individual by the institution be recovered.