Welcome to this issue of the KPMG in Central & Eastern Europe (CEE) Fraud and Corruption Newsletter. The Newsletter is an electronic bulletin providing its readers with an overview of mass media articles relating to the fight against bribery, corruption, and fraud in CEE.
The chair of a major Belarusian state-owned light industry concern, which comprises more than 100 companies, and two directors of textile manufacturers have been accused of bribery and abuse of office. The accused chair of the concern was involved in corrupt activities, namely bribery and tender rigging, at the time he worked as a director of another Minsk-based textile company. Allegedly, he manipulated a EUR 16.7 million tender in favour of a pre-selected equipment supplier, even though there was no economic justification of this supplier’s selection. In exchange, the supplier paid for his family’s vacation in Germany and on the Canary Islands. Later, as the chair of the state-owned concern, he instructed other concern members to treat the supplier preferentially in tenders.
The same supplier was involved in another case, in which they offered another textile manufacturer a bribe worth EUR 36,000. A criminal investigation has been initiated against the directors and the chairman.
The Bulgarian Supreme Court has issued a final ruling in a bribery case of a former chief judge of the Administrative Court in Varna, the largest Bulgarian seaside resort. The judge was arrested in July 2008 in a restaurant in Varna in a joint operation by the State Agency for National Security (DANS) and prosecutors of the city of Sofia. The lawsuit against the chief judge was initiated in July 2009, when she was accused of soliciting and taking a bribe worth BGN 10,000 (approximately EUR 5,100). In exchange for the bribe, the judge was supposed to rule in favour of a particular company.
The ex-court chief's penalty includes a 3-year suspended prison sentence with a probation period of 5 years and a fine of BGN 10,000 (EUR 5,100). She has also been banned from occupying a position in the judiciary for the next 3 years.
Bulgaria and the European Anti-fraud Office (OLAF) will deepen their cooperation in fighting corruption and fraud. This was agreed at a meeting between the Bulgarian prime minister and the director of OLAF. The two officials discussed the priorities of the Bulgarian government in countering corruption and fraud and the results achieved by OLAF in Bulgaria: since the beginning of the year, the office has helped to investigate 10 fraud or corruption cases. The prime minister and the OLAF head also agreed that intense cooperation between Bulgaria and OLAF is of great importance for safeguarding the financial interests of the EU.
At a public discussion that followed the meeting with the PM, the OLAF director also identified major problems that Bulgaria faces in its anti-corruption efforts. Namely, he pointed out judges’ inability to effectively punish corrupt activities.
Four individuals from the Olomouc region (the eastern part of the Czech Republic), including two high-ranking police officials, a businessman and a politician, have been accused in a case involving alleged bribery and abuse of power. A former interior minister has also been questioned by police in relation to the case. It is alleged that the accused police officials took bribes in exchange for influencing investigations and providing suspects with information. According to police, investigation into the suspicious financing of a hockey club, a water park and a horse-racing complex might have been among the influenced cases. If found guilty, the accused face up to 10 years’ imprisonment.
The anti-corruption unit of the Czech police has exposed an attempted VAT fraud. Four individuals claimed VAT returns totalling CZK 83 million (more than EUR 3 million). The police unit discovered the fraud thanks to an older 2013 case, in which three of the accused individuals evaded VAT worth CZK 49 million (EUR 1.8 million) and intended to claim an additional amount of CZK 198 million (EUR 7.3 million). Previously, the two accused had an accomplice: an employee of the financial administration, who advised them how to fill in VAT return forms so that they could reclaim the VAT from the government. Now, after having searched hard drives of computers belonging to the accused, police have found out that two of them, with two new accomplices, prepared another VAT fraud.
A former chairman of the board of directors and the president of state-owned Latvian Railways was arrested in August this year when Latvia's anti-corruption police unit caught him on the Latvian-Estonian border with EUR 500,000 in cash found in the back of his car. Allegedly, this money was given and accepted as a bribe in relation to a purchase of locomotives by a subsidiary of Latvian Railways from a company owned by one of the richest businessmen in Estonia. Immediately after the arrest, the official was dismissed from his post as the chairman of the board at Latvian Railways. In October, he was released from prison on bail in the amount of EUR 400,000.
The head of the Warsaw Stock Exchange (WSE) has left the WSE building accompanied by officials from the Central Anti-corruption Bureau. According to media reports, police have also raided offices in the Treasury Ministry building, where the head of the stock exchange previously worked. He was also requested by Polish prosecutors to willingly submit electronic data carriers containing potential evidence of irregularities in the privatisation of a major Polish chemical company. The privatisation took the form of a public tender, to which only one bidder – a company owned by one of the richest men in Poland – applied. Allegedly, several meetings took place between the accused and the owner of the bidder. Investigators in the case are inquiring into allegations of conflict of interest, corruption and abuse of public office.
The Polish Internal Security Agency (ABW) is investigating a petrol fraud scheme estimated to have caused about PLN 31 million (approximately EUR 7.3 million) in losses to the state budget in unpaid VAT. The alleged scheme is very similar to other cases already under investigation by ABW, in which bogus companies, which had been active on the market for a short period of time, are used as “missing traders”. It is alleged that the scheme then allowed the suspects to supply the market with cheaper petrol fuel, which they were able to sell at high margins. The suspects have been arrested and face up to 10 years’ imprisonment if convicted.
The financial director and the chief accountant of a real estate company have been indicted for tax evasion (the company itself is also being prosecuted). The alleged illegal activities took place between September 2009 and December 2013 and relate to a large shopping mall, whose real value the accused are alleged to have tried to conceal so as to lower property tax, by listing a fictional value of the building in the company’s financial statements. The company issued a press release in which it denied the charges saying it had always paid taxes and abided by Romanian laws.
An owner of a large company providing, inter alia, security services has been detained by anti-corruption police on bribery suspicions. Prosecutors allege that in September 2015 the owner, in association with another businessman, won a contract with a city hall by bribing the mayor. It is alleged that the bribe paid to the mayor was worth 10% of the value of the contract: RON 70 million (almost EUR 16 million) excluding VAT. In addition to the money, it is alleged that the mayor received various other benefits such as paid accommodation on trips abroad, electronic devices or price reductions for stays at a luxury hotel.
There are suspicions that other employees of the city hall also accepted paid holiday accommodation from the company owner.
The National Anti-corruption Directorate (DNA) has indicted several managers of a Bucharest-based water supply and sanitation company on multiple charges including bribery, tax evasion and money laundering. DNA prosecutors allege that the general director of the company awarded contracts to several businessmen with no actual works having been delivered. The money was then used by these businessmen to influence public officials to act for the benefit of the company.
Three managers of the company, including the general director, are alleged to have also used a similar scheme to evade tax: with the complicity of three businessmen, they procured fictitious goods and services, thus lowering the company’s income and, consequently, the amount of tax to be paid. The authorities estimate the loss to the state budget incurred by this purported tax fraud is more than RON 39 million (almost EUR 9 million). Prosecutors also estimate that illegal funds worth RON 76 million (EUR 17 million) were laundered.
Police have arrested the alleged head of the largest money-laundering group in Russia. The group included 500 people and 60 banks, some of them state-owned. Over the past 4 years, this group supposedly illegally shifted black funds worth EUR 42 billion to EU countries.
The money-laundering scheme was allegedly based on fictitious loans between offshore companies (often UK-based) with Moldovan individuals as guarantors. The Moldovans in turn engaged Russian shell companies (i.e. companies with no assets or operations of their own) as their guarantors. When the offshore companies did not receive a payback of the loans they appealed to Moldovan courts, which then forced debt recovery from the Russian guarantor companies, thereby certifying the money as clean. Moldovan courts then ordered that the money was transferred from the accounts of Russian guarantors to the bank accounts of the creditors. The money was first transferred to an account at a Moldovan intermediary bank controlled by the head of the criminal group and, finally, to an account at a Latvian, i.e. EU-based bank.
The mayor of Belgrade has denied media reports stating that he owns numerous apartments in Bulgaria. He said he owned only one apartment in Bulgaria, which he reported to the Anti-Corruption Agency when he became an advisor to a deputy prime minister in January 2013. However, according to an NGO called KRIK, whose mission is to report on crime and corruption, the mayor bought 24 apartments on the Bulgarian seaside in 2012 and 2013 through two offshore companies based in the British Virgin Islands, of which he was the legal representative.
He responded to the allegations by stating that this had nothing to do with his current role as a mayor and that the information is related to the time he worked as a consultant in a private company. Representatives of KRIK say that they have evidence which shows the mayor is still involved in the real estate business in Bulgaria. Considering the mayor bought the apartments for his own personal use, KRIK representatives point out that it is unclear where the mayor could get the money for the property purchases with his annual income never having exceeded EUR 34,000.
KRIK also allege that there might be a link with the time the mayor worked as the director of the Centre for Tenders in the Agency for Privatisation, a government body. At that time the Russian giant Lukoil bought a Serbian gas company despite not honouring the agreement it had with the Serbian government. In the present case, it is the director of the Serbian Lukoil branch and his business partners from whom all the apartments were bought.
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