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 Group of Countries against Corruption (GRECO), the Council of Europe’s anti-corruption body, has published its interim compliance report on Belarus, which reveals that the country has partly implemented only one of 20 GRECO recommendations regarding the fight against corruption. No progress has been made in relation to the remaining recommendations, the report states.
The report also criticises Belarus’s unwillingness to introduce comprehensive anti-corruption strategies and mechanisms and to strengthen the independence of the general prosecutor’s office and of the judiciary as a whole. According to GRECO, Belarus fails to sufficiently support concrete anti-corruption initiatives, and the report concludes by stating that the country’s compliance with GRECO’s 2012 recommendations remains “globally unsatisfactory”.
The founder and former president of a Minsk-based basketball club has been sentenced to five-and-a-half years’ imprisonment for embezzling the club’s funds. The damage totalled EUR 320,000. According to prosecutors, the ex-president concluded fictitious contracts with players, inflating their salaries. The players acted as accomplices in the embezzlement scheme and gave the club’s official access to their private bank accounts, from which he withdrew the inflated salaries, paid the actual salary to the players in cash, and pocketed what was left. In his defence, the ex-president claimed that the embezzled funds had in fact been used to cover certain club-related expenses such as accommodation and travel costs.
A former employee of the Energy Regulatory Office of the Czech Republic (ERU) has been sentenced to 5 years' imprisonment for issuing an illegal solar license to operate a photovoltaic power plant for a period of 25 years. She issued the license in 2010, shortly before the Czech government changed the conditions of its renewable energy support, making investments into solar power plants less profitable.
The former employee issued the license even though statutory requirements had not been met, a fact that she was also notified about by her superior, prior to the issue. In her defence, the employee claimed that she had issued the illegal license due to work stress, lack of time, and in negligence, without any intention to favour the plant owners.
The High Court of the Czech Republic in Prague has set aside the conviction and sentence of a former health minister (later a regional governor) on the basis of as yet undisclosed procedural shortcomings, and sent the case back to the regional court to be heard again.
In a high-profile case, the former health minister had been convicted of accepting bribes in exchange for helping certain suppliers win public contracts for reconstruction works. He was caught red-handed with the equivalent of almost EUR 300,000 in cash hidden in wine boxes and with more cash stashed under the floorboards in his apartment. The regional court sentenced him to eight-and-a-half years in prison and ordered seizure of his property, worth over EUR 1 million.
Latvia’s anti-corruption bureau has started looking into donations given by several construction companies to the political party headed by Riga’s vice-mayor. The companies were awarded public contracts to perform road repairs in the Latvian capital. The probe was prompted by media reports and a letter sent by the leader of the opposition party in the city council, which asked the bureau to investigate potential conflicts of interest and suspected corruption among certain city council members. It is alleged that, in exchange for the donations, the officials favoured the construction companies by awarding public contracts with the city.
A court in Podgorica, the Montenegrin capital, has sentenced the former president of the former state of Serbia and Montenegro to 3 years in prison over charges of corruption and abuse of power. The corruption case relates to the Montenegrin resort town of Budva, where the ex-politician and several other individuals, including the ex-president’s family members, were implicated in suspicious dealings with construction companies. The dealings, for instance, involved illegal sales of state-owned land or overpaying of contractors performing construction works for the city. The former president pleaded guilty to the charges and was ordered by the court to return the embezzled funds worth EUR 1.1 million and, in addition, to donate EUR 50,000 to charity.
Members of local Polish pharmaceutical trade body INFARMA have recently started reporting their spending on health care professionals (HCPs) and health care organisations (HCOs), after INFARMA adopted a Transparency Code developed by the European Federation of Pharmaceutical Industries and Associations (EFPIA).
INFARMA has published statistics on payments reported for the first year, 2015. These reports show that INFARMA’s members (30 companies) paid nearly PLN 623 million (approximately EUR 145 million) in total to HCPs and HCOs, of which nearly PLN 400 million (approximately EUR 90 million) was for clinical research. Other spending included payments for lectures, preparation of medical analyses, and participation in advisory boards. Donations to HCOs were over PLN 52 million (approximately EUR 12 million).
Publication of spending on individual HCPs and HCOs was subject to their consent. In the first year only 22% of recipient HCPs consented to their names being released, while 70% of HCOs agreed. Average spending on the named HCPs was PLN 2,772 (approx. EUR 650) and average spending on the named HCOs was PLN 32,514 (approx. EUR 7,500).
The Supreme Audit Office of Poland (NIK) has issued a report showing that the country is largely ineffective in discovering and countering money laundering. It is estimated that over EUR 4.2 billion was laundered from January 2013 to June 2015; however, anti-money laundering authorities were able to recover only a tiny fraction (less than 1% every year) of the sum. The NIK report has also criticised the current system of inspections of financial transactions performed by fiscal authorities, citing poor organisation and lack of coordination.
A Romanian subsidiary of a multinational pharmaceutical company has been accused of causing EUR 10 million of damage to the Romanian state through alleged tax evasion. According to the tax authorities, the company had provided marketing and promotional services in Romania to its EU-based parent company, but the services were invoiced as if the work was conducted outside Romania and the VAT due was therefore not paid.
The company is also said to have made payments to travel agencies and event management companies for the participation of health care professionals and pharmacists in various local and international events. VAT deductions were sought by presenting these payments as sponsorships and donations, whereas the tax authorities considered them promotional costs. Also at issue was the VAT treatment of products provided free of charge as donations or samples, but which the tax authority found to have been provided as incentives to make further orders.
A former Romanian prime minister is alleged to have put a businessman on the electoral list (ensuring him a seat in parliament) in return for sponsoring a visit of the former British prime minister Tony Blair. The costs of the visit covered by the businessman, including a fee paid to Mr Blair for giving a lecture, amounted to EUR 220,000. According to prosecutors, the former Romanian PM arranged the whole visit to make it look as if it had been organised by NGOs. The plan was for Mr Blair to appear to “request” a meeting with the PM, which was supposed to increase the political capital of the former Romanian PM.
Romania’s former telecommunications minister has been sentenced to 3 years’ imprisonment for bribery and money laundering, and the court has issued an order to seize assets worth EUR 2.2 million – an amount equivalent to bribes he received. Besides the minister, a former mayor and two businessmen have also been convicted in this corruption case involving Microsoft software licenses.
The court found that the officials had helped certain suppliers win contracts for supplying and implementing Microsoft Office licenses at schools and other public institutions. They also managed to embezzle a 47% discount offered by Microsoft to the Romanian government. The former minister attempted to launder the money by transferring the funds he had received in bribes to a company owned by him through an intermediary entity, which provided fictitious marketing and consultation services to the former minister’s firm.
The deputy head of the anti-corruption agency at Russia’s Interior Ministry has been arrested for allegedly receiving a EUR 100,000 bribe. After the arrest, police conducted searches and are reported to have found over EUR 110 million in cash stashed in the official’s apartment, vehicle and office. Representatives of Russia’s security service have also reportedly found over EUR 300 million on Swiss bank accounts of the official’s father.
Investigators are looking into the possibility that the money was tied to a EUR 370 million embezzlement at a now-bankrupt Russian bank. Allegedly, the anti-corruption official acted as an accomplice of the prime suspects in the embezzlement case, two co-owners of the bank. He is alleged to have helped them cover up the scheme, hide the embezzled money, and to have warned them before a planned police raid.
The head of construction at Aeroflot, the largest state-owned airline in Russia, has been arrested over alleged embezzlement. Prosecutors suspect that the fraudulent scheme orchestrated by the executive involved reporting of fictitious electricity consumption to an energy company, where the Aeroflot’s executive had an accomplice in one of the shareholders. The accomplice has been placed under house arrest for his involvement in the scheme, which caused an estimated damage of EUR 300,000.
A Russian regional court has issued an international arrest warrant for the former CEO of a major energy company. The CEO is alleged to have bribed state officials of the Komi Republic, a part of the Russian Federation. The bribes he and his accomplices provided to the officials are estimated at more than EUR 11 million and were allegedly paid to obtain permission to charge inflated heat and electricity rates, which are normally subject to state regulation. Besides cash, the bribes were allegedly given in the form of real property and of shares in a regional energy company, which the officials obtained through a series of transactions involving offshore companies.
“Cobra”, a specialist unit of the Slovak police tasked with combating tax fraud, has managed to recover EUR 657 million of evaded tax over the 4 years of its existence, according to the president of Slovakia’s financial directorate. He has stated that tax fraud is rampant in Slovakia and even called it the country’s “national sport”, adding that the VAT fraud cases usually involve large amounts of money and are based on claiming fictitious VAT refunds from the government.
Since its establishment in 2012, Cobra has performed 1,800 tax checks and investigated 718 companies. A total of 271 individuals have been charged with various financial crimes as a result of the unit’s efforts.
The head of the anti-cartel department at the Antimonopoly Office of Slovakia and some of the department’s other workers have resigned from the Office following the appointment of a new vice-director, whom they consider to be an “obstacle” to the department’s independence from political influence.
It is alleged that the new vice-director was appointed by the government in response to some of the investigations performed by the department. Over the last few months, it has been dealing with cartels of companies issuing meal vouchers, IT firms providing services to local governments and a matter alleging a secret deal between Slovakia’s largest dairy producer and major supermarket chains concerning pricing policies. Some sources point to possible involvement of government members in these cartels.