OLAF: aid schemes suffer ‘complex financial abuse’

Date: 25/11/04

By David Cronin

EU humanitarian and development aid is suffering from “complex and well-organized” financial abuse, the European anti-fraud office OLAF has found.

In its annual report - to be published tomorrow (26 November) - OLAF warns that such fraud takes advantage of the “lack of coordination” between aid donors and organizations handling their funds.

Recent cases investigated by OLAF reveal that the tendency for aid schemes to receive funding from several sources “has increased the complexity of accounting and reporting requirements and so made it easier to divert funds for personal or criminal benefit”. It adds: “The methods employed include declaring bogus costs and financial transfers, declaring projects as completed when that is not the case and seeking and receiving double or multiple funding of projects from different donors.”

Two of the examples cited in the report relate to water projects. In Lesotho, OLAF opened an investigation into misuse of aid for constructing a dam, which was to provide water to neighbouring South Africa. Bank accounts containing 3 million euros in suspected bribes to a Lesotho official were detected in Switzerland. The scheme had been allocated more than 180m euros in EU aid, as well as money from the World Bank.

In Paraguay, an external audit revealed that 90% of EU funds transferred to a project aimed at improving water supplies to 50 local authorities had been diverted to a foundation with no involvement in it. When OLAF launched further investigations it found that sub-contractors who had been paid were fictional.

OLAF says that it will complete, by the end of this year, its investigations into allegations that EU aid to the Palestinian Authority had been siphoned off to fund terrorists. An interim report stated in March that there was no proof of such misuse of funds.

A spokeswoman for Benita Ferrero-Waldner, the new external relations commissioner, said that she could not comment on the OLAF report as she had not yet seen it.

Despite the criticisms about donors' lack of coordination, the report states that the number of cases OLAF is pursuing on the work of EuropeAid, the Commission's external assistance office, has declined sharply - from 30 in 2002-03 to nine in 2003-04.

Covering the twelve months preceding June 2004, the report reflects on the most turbulent period in OLAF's history since its inception in 1999. Controversies affecting it during this time included the arrest of Hans Martin-Tillack, a journalist with German magazine Stern, over allegations that he had paid bribes to obtain internal OLAF documents.

Raymond Kendall, the former Interpol director who chairs the board monitoring OLAF's activities, has criticized the treatment of Tillack, arguing that he was arrested “on the basis of hearsay”.

But in his foreword to the report, OLAF Director Franz-Herman Brüner rejects that claim. Rulings by the European Court of Justice, he said, do “not substantiate the assertions sometimes made that OLAF does not respect the rights of individuals”.

He also hits back at calls by EU Ombudsman Nikiforos Diamandouros earlier this year to reopen an investigation into fraud allegations made by French hydraulics firm Blue Dragon. OLAF closed that case in 2002 and Brüner rejects claims that it had not been conducted with sufficient rigour. “It is not OLAF's role, after reasonable scrutiny of the facts, to pursue further unfounded complaints simply because the complainants prefer lobbying in Brussels to taking legal proceedings in the competent national courts,” he says.

The report defends the handling of the scandal that embroiled the Commission's statistics office Eurostat last year. Brüner says that dossiers on the issue have been handed to judicial authorities in Luxembourg and France and that he expects “visible results within months” from their investigations.

The European anti-fraud office OLAF published its annual report on 26 November 2004. The report says that EU humanitarian and development aid is suffering from 'complex and well-organized' financial abuse which is favoured by the 'lack of coordination' between aid donors and organizations handling their funds.

OLAF: Reports: Operational Activities Report 1st July 2003 - 30 June 2004 http://ec.europa.eu/anti_fraud/

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