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.
In the last edition we notified you of the release of our 2016 Global Profile of the Fraudster report. We have now prepared a supplemental document, “Profile of a Fraudster: the picture in Central and Eastern Europe”, which explores the similarities and differences between the global results and findings based on the 45 CEE cases included in the survey.
Among the findings, we note that:
I wish you pleasant reading.
The Parliament of Bulgaria has passed a new draft of the anti-corruption bill. The earlier version of the bill was criticised by the supreme court among others and was rejected by parliament’s anti-corruption and ethics committee in May this year.
The bill is part of a broader judicial reform strategy. The anti-corruption bureau introduced by the bill will unite several existing institutions: the government’s anti-corruption office, the commission on conflicts of interest, and the departments of the National Audit Office which review public officials’ asset declarations.
According to the European Anti-Fraud Office ("OLAF"), Bulgaria and Romania are the countries where it has conducted the largest number of investigations into misuse of European funds. Out of 199 investigations conducted by OLAF in 2015, 45 took place in Romania and 19 in Bulgaria.
Many of the cases investigated relate to alleged misuse of funds granted under the Special Accession Programme for Agriculture and Rural Development (SAPARD), which supported the countries’ pre-accession efforts to prepare for participation in the common agricultural policy and the single market. OLAF recommended criminal proceedings in 83% of Romanian and in 100% of Bulgarian cases related to SAPARD.
Police in the Bulgarian city of Pleven have exposed a scheme that allegedly attempted to defraud the National Health Insurance Fund ("NZOK") of almost EUR 250,000. Police suspect that the fraudulent practices, which allegedly took place at a diagnostics and consultancy centre in Pleven, involved creation of forged insurance claims using the personal data of patients.
In reaction to fraudulent claims, Bulgaria’s Ministry of Health is considering implementation of a new system. Under the new system, patients would be required to register themselves with their fingerprints each time they visit a hospital and to confirm, again with their fingerprints, that they have received particular treatment.
The State Commission for the Resolution of Conflicts of Interest found the deputy prime minister (DPM) to have conflicts of interest arising from his call for Croatia’s withdrawal from an arbitration with a major Hungarian oil and gas consortium. A personal friend of the DPM works as a lobbyist for the Hungarian firm, and the DPM’s wife had also allegedly been receiving payments from the lobbyist.
In his defence, the DPM stated that he had Croatia’s best interest in mind when calling for abandoning the arbitration and that he had not discussed the matter with the lobbyist.
The DPM later resigned his posts in the government and in the ruling Democratic Union party, stating that this decision had nothing to do with the Commission’s findings, which he plans to challenge in court. The case prompted a no-confidence vote, in which the government failed to gain sufficient support. The Croatian Parliament then voted to dissolve itself. New parliamentary elections are scheduled for September.
Prosecutors have indicted a lobbyist, seven other individuals and four companies over purported manipulations of public procurement processes. The lobbyist is alleged to have arranged for pre-selected companies to win public contracts with a hospital and a public transport company in the city of Ostrava.
The lobbyist’s company allegedly engaged in bribery estimated at EUR 1.1 million, using the lobbyist’s links to local politicians and heads of city-owned companies. To hide the illicit source of its profits, the company pretended that it had provided consulting services
Organised crime prosecutors have charged five individuals with fraud relating to the biggest photovoltaic power plant in the Czech Republic, which belongs to a partially state-owned energy giant. Though the prosecutors refused to provide details of the case, certain media sources have indicated that representatives of suppliers to the power plant and two managers of the energy company are among those accused.
The power plant was allegedly granted a license to operate despite not having submitted all the required documentation. There has also been speculation in the media that over EUR 3.7 million was misappropriated during its construction. Finally, it has been alleged that some of the companies involved in the power plant project and in the sale of the power plant to the energy company are linked to a former interior minister, whose integrity has been questioned on a number of occasions and who has been implicated in several corruption cases.
Latvia’s anti-corruption bureau has asked for bribery charges to be brought against seven staff of the oncology and radiology department at the Riga Austrumu Clinical University Hospital. The medical workers are alleged to have taken bribes from patients in exchange for better positions on waiting lists for magnetic resonance imaging examinations. Anti-corruption prosecutors are looking into a total of 22 corruption cases allegedly perpetrated by the group.
A former prosecutor in Rzeszów, the biggest city in south-eastern Poland, has been arrested over charges of corruption, abuse of power and forgery. Police suspect her of taking bribes worth more than EUR 40,000. Allegedly, she accepted the bribes in the form of expensive bottles of alcohol and construction works provided to her private benefit. In exchange for the bribes, she helped an entrepreneur in resolving certain issues he had with the authorities. In addition, it is also suspected that she submitted forged documents when applying for a loan at an institution managing public funds. The former prosecutor was arrested based on witnesses' reports, and on information secured via wiretaps.
Anti-corruption police in Lublin have identified attempted bribery at Poland’s leading manufacturer of fertilisers and other chemicals. The alleged bribery concerned a contract for the supply of specialised, multi-purpose protective clothing for employees of the chemical company. As it seemed likely that the protective equipment supplier’s 2013 contract with the company would not be extended, representatives of the supplier allegedly resorted to bribery in order to influence the decision of the chemical company’s management in their favour. The chairman and a board member of the protective clothing supplier were caught by police red-handed when they were attempting to hand over a bribe worth about EUR 1,900.
Three individuals, two Polish and one French, have been accused of having extorted over EUR 7 million from German and French companies that fell victim. The scheme included hacking methods as well as various means of extracting information over the phone and via email. The information obtained was used to coerce the victims into transferring money to the bank account of the scammers.
One of the methods of extortion used by the suspects was the so-called “chairman scam”, in which the perpetrator communicates with the victim organisation pretending to be a board chairman or other high-ranking manager, requesting the employee to transfer funds as payment for fictitious services or goods. The alleged fraudsters extorted money transfers ranging from one thousand up to several million euros. Amongst others, they persuaded one of the victims to pay almost EUR 5 million to what they claimed to be the bank account of the defence ministry of a European country, for the alleged purpose of financial support to anti-terrorist operations.
Polish police are cooperating in this matter with German and French law enforcement authorities, who are conducting separate investigations in their countries. In Poland, the accused face from 6 months to 15 years’ imprisonment.
An investigation has been launched at the National Medicines Agency after a television station's report disclosed that thousands of health care professionals had been on the payrolls of pharmaceutical companies, which is prohibited under Romanian law. The agency is alleged to have manipulated – or even disposed of – both sensitive documents and publicly available information related to the payments made by pharmaceutical companies to health care professionals, thus helping to cover up the corruption.
The controlling body is to investigate how the agency complied with the legal regulations and with its own internal guidelines related to recording and publication of information about payments to doctors reported to it by pharmaceutical companies.
Romania’s Directorate for Investigating Organised Crime and Terrorism ("DIICOT") have commenced prosecution of the major shareholder and of the president of a Romanian football club for embezzlement, tax evasion and money laundering.
Allegedly, the two individuals misappropriated EUR 10 million of the football club’s assets between 2008 and 2013. They used a scheme under which payments were made for sports consulting and mediation services to shell companies based in Cyprus and the Seychelles that were controlled by the major shareholder. The tax evasion charges relate to fictitious expenses recorded in the football club’s books with the purpose of lowering the amount of tax payable by the club.
A former MP convicted of corruption will be extradited to Romania from the Cayman Islands to serve a 5-year prison sentence. The ex-politician was a member of the counter-intelligence unit of the communist regime's secret police before 1989. After the revolution, he founded an intelligence agency operating under the Interior Ministry named UM 0216, colloquially known as “Two and a quarter”.
The politician was sentenced in 2011 for selling the assets of a state-owned company, of which he was an administrator, for a fraction of their market value to companies controlled by him. The assets were then resold at the market value, which allowed the ex-MP to make a profit of EUR 500,000. He is also alleged to have been involved, again as an administrator, in the dubious privatisation of a chemical plant, which resulted in the chemical company's dissolution, and in an illicit property restitution, through which he defrauded the Romanian state of EUR 100 million.
A court in Moscow has issued an arrest warrant for the former head of a state-owned company which used to be the sole supplier of electricity to the Russian military. The official is alleged to have misappropriated EUR 6 million through various fraud schemes, such as supplying electricity at inflated prices and entering into fictitious transactions. He is reported to have subcontracted and made payments to two shell companies for electricity grid repair which never took place.
The allegedly fraudulent practices took place between 2011 and 2013, and the businessman is believed to have fled Russia to escape prosecution.
In the last issue of the Newsletter, we reported on a Serbian fraud case involving the directors and owners of major Serbian companies, including a holding company, Serbia's largest private employer. Two of the three accused were already sentenced, and now a Belgrade court has found the third accused, the owner of the holding company, guilty of tax evasion, and sentenced him to 5 years' imprisonment.
According to the judges, the businessman helped his son, one of the sentenced in the case, evade paying around EUR 3 million in taxes. The court also ordered him to pay a EUR 65,000 fine. The holding company’s owner also faced embezzlement charges, of which he has been cleared.
From July 2016, the new corporate criminal liability act allows the prosecution of Slovakian corporations if it can be shown that that a crime was committed for the benefit of the corporation, through the activities of the corporation, or on behalf of the corporation. The legislation lists a number of criminal offences for which the corporation can face prosecution, including tax crimes, legalisation of the proceeds of crime, corruption and fraudulent alteration, among others.
Allegations have emerged that the Slovak interior minister accepted hundreds of thousands of euros from the head of a construction company in exchange for stopping an investigation into the businessman’s excessive VAT refunds, estimated at EUR 16 million. The allegations were prompted by a leak of bank documentation showing that funds were transferred to the interior minister’s account from the construction company where the businessman had been working until October 2013.
The bank transfer documentation was leaked by an assistant of an opposition MP, at the same time an employee of the bank, which constituted a breach of bank secrecy and resulted in the assistant's prosecution. Prior to the leak, the opposition had demanded the minister's resignation, as it was publicly known that the investigative body (“NAKA”) responsible to him had stopped its investigation into the suspicious VAT reclaims, including an alleged EUR 2 million VAT refund from fictitious property purchases. The media also speculate that the businessman may have links to other high-profile Slovak politicians, including the prime minister.
The Supreme Court has cleared a judge from the city of Topoľčany of corruption and abuse of power charges. The judge was alleged to have accepted bribes in two cases dating back to 2003, for which a court sentenced him to 7 years in prison. However, the Supreme Court later annulled the ruling and ordered a new trial, at which the accused was given a 5-year sentence instead. The judge appealed the later verdict, and the Supreme Court ruled, to the surprise of many, that video recordings proving the judge’s acceptance of the bribes could not be used as evidence in court – allegedly, the recordings had been made illegally, as there had been no court order allowing for the creation of such recordings. Having excluded the videos from the body of evidence, the court decided that the remaining evidence did not conclusively prove the judge’s guilt and set him free.
A former head doctor of the oncology department of a hospital in eastern Slovakia has been given a 2-year suspended sentence for fraud. It was found that the doctor had issued a number of fake prescriptions for special drinks for cancer patients, amounting to EUR 44,000. The doctor used patients' personal information in the prescriptions without their knowledge, and then collected the drink supplements from a pharmacy herself, only to on-sell them at a profit. Immediately after the case was exposed, the hospital dismissed the doctor, who then pleaded guilty to the fraud charges in court.
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