Europe’s Fraud Frontlines

Ernesto Bianchi
Catching and preventing fraud in the European Union is no easy task, and its anti-fraud agency OLAF has more than its fair share of wrongdoing to contend with. We talk to Ernesto Bianchi, OLAF’s acting deputy director-general of operations and investigations, about the challenges ahead as the EU prepares to disburse money from its biggest-ever budget.
By Paul Kilby

If complexity is a fraudster’s friend, then the European Union (EU) is a near-perfect stomping ground for scammers.

Bring together 27 member states, 24 official languages, a land mass that borders 20 countries (including war-torn Ukraine), a long history of national conflicts as well as multiple laws and customs, and opportunities for wrongdoing abound. That’s not to mention an EU budget that now runs in the trillions of euros, which fraudsters would love to get their hands on and have already on several occasions successfully pillaged.

“Europe is a complicated place,” says Ernesto Bianchi, acting deputy director-general in charge of operations and investigations at the EU’s anti-fraud office, which goes by the French acronym OLAF. “In the United States you have one country. We have 27. That is not always easy to organize.”

Bianchi has been on the frontline in Europe’s fight against fraud since he started in his current position in 2020 amid the chaotic outbreak of the COVID-19 pandemic in Italy, his country of birth and where the Continent first experienced the devastating effects of the disease. Bianchi’s career as a civil servant in Brussels spans 28 years, during which he managed various policy departments known as directorate-generals at the European Commission. He joined OLAF in 2015, where he’s been responsible for agricultural and structural funds, trade and customs fraud, and tobacco and counterfeit goods.

Bianchi, who also oversees OLAF’s revenue and international operations, investigations and strategy, talked to Fraud Magazine earlier this year via Zoom about the challenges the anti-fraud agency has faced over the past few years and the hurdles ahead as the EU seeks to spend more on COVID-relief and mitigation programs, green projects, digitalization and the fight against global criminal organizations.

Verify, verify, verify

The difficulties of detecting and preventing fraud in a multination union became all too apparent amid the chaos at the start of the COVID crisis, when fraudsters benefited from poor communications among various national agencies tasked with verifying the quality of masks and other personal protective equipment (PPE) being sent to Europeans desperate for help.

“The authorities in the different countries were reacting at different speeds,” says Bianchi. “[Fraudsters] looked for the weakest link. So, if there was one member state where COVID was really not a problem, they’d try to enter the European market from that country, where checks were lower.”

Poorly made, counterfeit masks that went for five to 10 euros each — three times the normal price — flooded European ports at the time. Among other scams, fraudsters used falsified documents and fake CE marks — certification that the products met European standards — to sell PPE across the union. (“Fraudsters offer 1 billion COVID-19 doses across EU, agency warns,” by Gabriela Baczynska, Reuters, March 1, 2021; “OLAF launches enquiry into fake COVID-19 related products,” OLAF, March 20, 2020; and “Questionable Paperwork Lets Fake and Faulty Masks Flood Europe,” by Aubrey Belford, Sarunas Cerniauskas, Matteo Civillini and Ola Westerberg, OCCRP, July 2, 2020.)

Face masks would arrive at a major European port, authorities would check the ones staying in that particular country and ignore the rest that were being sent to other EU countries, says Bianchi. The problem was that nobody had told verification authorities in other member states that they were supposed to run their own checks.

“So, when the other countries received them, they just assumed that somebody had checked them at the port of entry,” says Bianchi. “This horror story triggered by good faith is perhaps one of the biggest lessons we have learned from the COVID pandemic.”

That was just one of many frauds perpetrated in Europe that OLAF had to handle during the crisis. But OLAF’s prevention efforts have only just started. The EU plans to extend 723.8 billion euros in loans and grants to member states through the Recovery and Resiliency Facility (RRF), which is partly designed to help mitigate the social and economic impact of the pandemic. And those billions are just a fraction of the trillions of euros slated for dispersal in coming years, making OLAF’s mission of investigating cases of fraud and corruption involving those EU funds just that bit tougher.

“That money is being spent now, so we will see if fraudsters will attack it too,” says Bianchi. “I am sure they will as some of it is for procurement, which is something they love.”

Broad mandate

OLAF’s mandate already stretches far and wide, encompassing everything from the evasion of customs duties to preventing the trafficking of endangered species to clamping down on counterfeit products. The agency itself was born as a result of a big corruption scandal 23 years ago. In 1999, when the European Commission, then headed by Jacques Santer, resigned en masse amid accusations of corruption and nepotism, the authorities decided to create OLAF. In an effort to better combat fraud affecting EU’s budget, they gave the new agency greater powers than its predecessor, the Anti-Fraud Coordination Unit (UCLAF), which had only been in existence for a year and was seen failing in its duties. (See “European Anti-Fraud Office – History.”)

OLAF doesn’t have prosecutorial powers, and it’s defined as an administrative body, meaning its investigations can only lead to financial, disciplinary, administrative or judicial recommendations to member states or the European authorities. But it does have useful investigative powers, such as on-the-spot checks and inspections as well as access to bank accounts to trace money flows. It can also knock on the door of authorities in member states, including the police and judges, to point out wrongdoing. “This is a unique set of powers that we have to carry out administrative investigations,” says Bianchi. (See “Questions and Answers on OLAF’s new legal framework to protect the EU budget,” European Commission, Brussels, Dec. 17, 2020.)

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“The immediate effect is that what we knew, we no longer know.” -Ernesto Bianchi

Sometimes those investigations involve probing wrongdoing at the highest level. It recently looked into accusations that French presidential candidate Marine Le Pen and her party had misappropriated thousands of euros in EU funds, while its investigation into reports of the illegal pushback of asylum seekers this year led to the resignation of the head of the EU border agency Frontex. (See “French prosecutor studying EU anti-fraud agency report on Le Pen,” Reuters, Europe, April 17, 2022, and “Head of EU border agency Frontex resigns amid criticisms,” by Jennifer Rankin, The Guardian, April 29, 2022.)

Much of OLAF’s work still revolves around Europe’s agricultural subsidies, which have long been a bone of contention and traditionally one of the biggest line items on EU’s budget. For the period 2023-2027, 386.6 billion euros have been allocated to the EU farm subsidies program — known as Common Agricultural Policy (CAP). That amount is split in two: 291.1 billion euros for the European agricultural guarantee fund (EAGF), and 95.5 billion euros for the European agricultural fund for rural development (EAFRD). (See “Show me the money: How much is the next CAP worth?” by Esther Snippe, Gerardo Fortuna and Natasha Foote, EURACTIV, updated March 31, 2022, and “EU lawmakers pass Common Agricultural Policy deal — but green critics sound alarm,” Deutsche Welle (DW), Nov. 11, 2021.)

Fighting agricultural fraud

Unsurprisingly, CAP is a popular target for fraudsters keen to get their hands on the billions of euros handed out by Brussels each year. Indeed, fraudsters have found all sorts of imaginative ways to gain access to EU agricultural funding. (See sidebar “Weeding out agricultural fraud.”)

Cases of fraud in the agricultural sector are rife, often bizarre and, perhaps unsurprisingly, have attracted officials in high office. Former Czech prime minister, Andrej Babiš, is expected to be prosecuted for fraud in a case brought to light by OLAF. Babiš, one of the richest men in the Czech Republic, allegedly hid his ownership of a resort to receive millions of euros slated for small- and medium-sized businesses. (See “Former Czech PM, Andrej Babiš, to face trial in EU subsidy fraud case,” AP via Guardian, March 21, 2022, and “Czech Republic Passes PM Andrej Babiš’s Fraud Case to EU Prosecutors,” by Emily Tian, OCCRP, June 8, 2021.) And abuse of the system, particularly among a powerful few, has come under intense media and government scrutiny in recent years. (See “The Money Farmers: How Oligarchs and Populists Milk the E.U. for Millions,” by Selam Gebrekidan, Matt Apuzzo and Benjamin Novak, The New York Times, Nov. 3, 2019.)

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