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.
A federal grand jury in Pittsburgh has indicted a Bulgarian national over an attempt to scam US-based businesses out of hundreds of thousands of dollars using a sophisticated phishing malware known as “GozNym”. The 44-year old man used the malware to obtain banking credentials of the victim entities, including a bolt-manufacturer and an asphalt and paving company. The malware was activated by clicking on an attachment of what seemed to be a business invoice and allowed the perpetrator to gain access to the victims’ online bank accounts and transfer their funds.
The Bulgarian national was arrested at his residence in the Bulgarian city of Varna, extradited to the United States and charged with criminal conspiracy, unauthorized access of a computer to obtain financial information, and bank fraud. If convicted, the defendant faces a maximum penalty of up to 100 years’ imprisonment and a fine of over EUR 3 million.
Bulgaria’s Supreme Court of Cassation, the final court of appeal, has ruled to uphold a lower court’s acquittal of a former member of parliament arrested on tax evasion and money laundering charges. According to the judges, prosecutors did not present enough evidence to prove that the politician owned the bank account allegedly used to make the illicit money transfers.
The prosecution of the deputy speaker started after Bulgaria’s Agency for National Security reported suspicious movements of funds on accounts registered in different European countries made by him and another individual. The Sofia City Court found the deputy speaker not guilty on the above charges, having issued its verdict after an unusually rapid trial that lasted only 2 days.
A former Minister of Culture of the Czech Republic and two other individuals have been given a suspended sentence of 10 months’ imprisonment for corruption. According to the court, the former minister acted as an intermediary in an attempt to bribe the head of Czech Radio, a public radio broadcaster. The EUR 9,000 bribe was offered in exchange for favouring a specific bidder, an entrepreneur, in the sale of a castle owned by the radio broadcaster and formerly used as a recreational centre.
Allegedly, the ex-politician handed the bribe over to the vice-head of Czech Radio, who kept half of the money and gave the other half to the radio’s director, claiming the money was an “advance payment concerning the sale of the castle”. The director later reported the bribery attempt to police, which lead to the conviction of the former culture minister, the vice-head, and the entrepreneur. All the convicted individuals have appealed the court decision.
The head accountant of a Czech subsidiary of a German computer numerical control machines manufacturer has been charged with embezzlement and is facing up to 10 years’ imprisonment. She allegedly managed to misappropriate more than EUR 3.7 million through issuing fictitious payment orders to vendors that no longer supplied any goods or services to the company. The accountant is alleged to have sent the misappropriated money to various bank accounts in England and Thailand that supposedly belonged to a conman whom she had met online and who had claimed to be a high-ranking official in the US army.
Police have accused 24 individuals of damaging the financial interests of the European Union for the benefit of an organised criminal group. The estimated damage amounts to EUR 515 million. According to press reports, a former governor of the Ústí nad Labem region (located in the north of the Czech Republic) and several other politicians, including a former senator previously sentenced on other corruption charges, were among those allegedly implicated in the fraud.
The group of 24 is alleged to have abused the process of EU grants’ allocation to regional development projects. Supposedly, the organised group arranged that favoured businesses (often with links to the accused politicians) would win the grant support, which was secured by manipulating the process of projects’ evaluation. There are also speculations that the accused promised other companies to award them with the grants only on the condition that they select entities with ties to the politicians as subcontractors.
The Hungarian parliament has passed significant tax law amendments which, among other things, introduce a tax amnesty for persons with undeclared income in offshore jurisdictions. If such persons declare their (as yet undisclosed) offshore assets by 30 June 2017, they will pay a 10% retroactive tax and will face no further penalties. According to representatives of the National Tax and Customs Administration (NAV), this comes as the last opportunity, as NAV will start receiving information on Hungarians' offshore deposits from 70 countries next year. This is based on multilateral agreements concerning exchange of information about financial accounts.
The head of a Hungarian travel agency, which also operated illegally as an investment bank, has been arrested on charges of embezzlement in Belize, where she was hiding, and flown back to Hungary. In reality, the “investment bank” was a pyramid scheme, and it is alleged that this scheme had attracted almost 1,000 customers, who had been lured by the prospect of returns far exceeding the market rates. It is estimated that deposits totalling approximately EUR 32 million were made by the customers. The scheme went bust in April 2016, when clients queued up in front of the travel agency's office to reclaim their deposits.
At a special press conference, a former head of the investigations department of the Corruption Prevention and Combating Bureau (KNAB) of Latvia has announced his intention to join a conservative political party led by a former justice minister, and run in Riga municipal elections. At the same press conference, the ex-official alleged widespread corruption at all levels of the Riga City Council, accused the council’s leaders of denying the existence of the problem, and encouraged other former KNAB officials to follow in his footsteps and join the ex-justice minister’s party.
The former KNAB department head was dismissed during last year’s reorganisation of the bureau. An assessment committee established following an order of the former KNAB chief had assessed the bureau staff’s professional qualification and dismissed four employees, including the then head of the investigations department, on the basis that they were not sufficiently qualified.
Poland’s anti-corruption prosecutors have detained six employees of a work centre for the disabled, including its president and a director, over suspicion that the officials embezzled PLN 2 million (over EUR 460,000) from the State Fund for Rehabilitation of Persons with Disabilities (PFRON). Several other entities have also been under investigation alongside the sheltered workplace over an alleged implication in the embezzlement of PFRON funds totalling in the tens of millions of Polish zlotys. The embezzled funds were intended to cover remuneration of persons with disabilities allegedly working at the institutions , including the sheltered workshop, which prompted speculations that the disabled persons’ employment was only fictitious.
Two foreign nationals and a Polish businessman have been arrested in Warsaw over an alleged attempt to bribe the government officials of an African country. The corruption related to the awarding of a contract for the supply of agricultural machinery financed under a development aid programme of the Polish government. However, the provider for the EUR 95 million contract was to be selected by the African country, where the accused claimed to have influence in the government circles. The three accused promised to make sure that a certain Polish company win the contract in exchange for a transfer of nearly EUR 24 million – a large portion of which was allegedly to be spent on bribes offered to African officials.
A former director of the information technology department of Romania’s Justice Ministry has allegedly accepted a bribe of EUR 274,000 from representatives of two software companies. In exchange for the bribe, he promised to arrange for the companies to win digitalisation contracts with the Ministry worth more than EUR 6.5 million. He is alleged to have favoured the two companies by providing them with specification of the contract before it was officially published by the Ministry and by manipulating the requirements for tenders to suit the companies. The ex-director is also facing charges of forgery, as he produced fraudulent documentation to prove the contracted goods had been delivered, when in fact no such delivery took place.
The Romanian government approved an emergency decree on 31 January amending the Romanian criminal code. Should it have been turned into law, the decree would have stopped investigations into certain corruption allegations and annulled some other corruption convictions, namely those where the damage caused by the misconduct was below EUR 44,000. The official pretext for adopting the decree was the overcrowding of Romanian prisons.
The content of the emergency decree, as well as the lack of transparency in the process of its approval by the government, triggered the largest public protests in Romania since the fall of communism. The decree was criticised by the Romanian president, judicial institutions, and certain media, who alleged that it had been designed only to decriminalise politicians convicted of corruption and to help others escape prosecution. The protests lead to resignation of the justice minister and ultimately forced the prime minister to scrap the decree.
The Russian Minister for Economic Development has been accused of soliciting and receiving a EUR 1.9 million bribe. In exchange for the bribe, the minister allegedly promised to approve a takeover of a state-owned oil company by another oil giant also controlled by the Russian government. According to media reports, the minister had been under police investigation for several months before police caught him red-handed receiving the bribe.
The economic development minister, who denied all the charges, is the highest-ranking government official to have been arrested since 1991. If convicted, he may face up to 15 years’ imprisonment.
An independent investigation has alleged that Moscow officials purchased New Year's decorations for the city at five times the market price. Moscow paid EUR 2 million for 64 light installations resembling champagne glasses, while their market price could have been around EUR 400,000. Red flags that the investigators noted in the tender documents published online (whose publication is required for all public procurement) included suspicious bidders with no previous experience in similar projects and the fact that decorations had already been installed before the contract was officially awarded. Under Russian law, the estimated value of public contracts should be determined by requesting bids from at least three different suppliers. From the information published online, the three companies that sent their bids appear to be personally interrelated, and two of them lacked any relevant track record.
A committee of the Slovak parliament has decided not to address allegations that events at which the logo of the Slovak EU presidency was presented were intentionally overpriced. The allegations had been made by a whistleblower who is a former employee of the Ministry of Foreign Affairs. The majority of parliament members (MPs) for the ruling coalition voted for closing the case, while opposition MPs left the room in an attempt to force the committee to discuss it again.
Meanwhile, an opposition MP has asked the foreign affairs minister to present all the documentation related to the selection of the agency that organised the events. After having received certain documents from the ministry, the MP stated that these documents were mostly irrelevant, especially as they did not contain the names and offers from other bidders interested in organising the event. The ministry also failed to provide a document justifying the decision to choose the agency, even though this is required by law.
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