Author: Nicola Sharp
1 June 2023
2 min read
Nicola Sharp of financial crime specialists Rahman Ravelli outlines the reasons why dozens of properties were targeted by those investigating a suspected fake letter fraud.
Dozens of houses were raided in Romania and France as part of an investigation into a €30 million European Union funding fraud.
The European Public Prosecutor’s Office (EPPO) announced that 40 houses were raided by investigators probing the fraud.
EPPO said that the criminal scheme is believed to be based on the sale of false letters of guarantee to those who are awarded the right to run projects financed by the EU. In projects that gain EU financing, the winner of the EU-funded contract has to submit a letter of guarantee of good execution. This letter is issued by a financial institution that undertakes to pay certain sums of money if the services that are the subject of the contract are not properly carried out.
According to EPPO, between 2020 and 2023 "several fictitious banks or dubious financial entities" issued such letters without having the funds necessary to cover the damages if a contract was not carried out properly.
Investigators allege that the suspected perpetrators of the scheme sold the letters to interested parties for large sums of money, with the letters then being used to assure the public authorities checking on the projects. But if a contractor had failed to meet their contractual obligations, these letters of guarantee would be of little or no use, as those that issued them did not have the financial resources to pay the sums of money needed.
Investigators have identified organisations in the Comoros Islands, off the south-eastern coast of Africa, the Czech Republic, Latvia and Spain that issued such letters of guarantee to be shown to the authorities in Romania.
The searches were carried out on houses in Roquebrune-Cap-Martin, a wealthy spot on the French Riviera, and in the Romanian cities of Bucharest, Alba, Arad, Cluj, Constanța, Hunedoara, Iași, Mureș and Olt. Seven law enforcement agencies took part in the operation.
The Luxembourg-based EPPO was set up two years ago to investigate and prosecute crimes involving the EU budget, including cross-border fraud and corruption.
All applications for EU funding have to go through a process which requires applicants to fulfil particular criteria for each application. The EU emphasises that obtaining EU funding requires following rules and procedures so that “every euro is spent in a transparent and correct way, to the benefit of EU citizens.’’ It is, however, working to simplify and modernise its budgetary rules.
The EU uses its budget to finance a range of programmes. These include the European Regional Development Fund (which involves transferring money from richer regions to invest it in infrastructure and services in underdeveloped regions), the Cohesion Fund (which supports EU Member States with low gross national incomes), the science research project Horizon Europe and the education and training programme Erasmus+.
The EU has a long-term budget of €1,074.3 billion for the 2021–2027 period. The largest share of this goes to agriculture and regional development.
Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.