National authorities take center stage in fight against fraud with recovery funds

European Commissioner for Values and Transparency Vera Jourova and European Commissioner for Justice Didier Reynders (R) give a press conference on the 2020 Annual Rule of Law Report in Brussels, Belgium, 30 September 2020. [EPA-EFE/OLIVIER HOSLET / POOL]

This article is part of our special report Recovery fund: the engine behind the European transformation.

National control mechanisms will be responsible for ensuring that the EU recovery funds are not affected by corruption or fraud, although the European Commission is also getting ready to use the new rule of law mechanism as soon as possible.

The first payments of the recovery funds are expected to reach member states in July. The long-awaited resources of the €672.5 billion Recovery and Resilience Facility will help to boost the European recovery.

As the funds start to finance member states’ investment and reform projects, a key element in the implementation of the recovery facility will be the auditing and control mechanisms in each member state.

Having sound mechanisms in place to protect the Union’s financial interests against any maladministration has been one of the elements prioritised by the Commission in the negotiations with national governments to finalise the recovery plans. 

A Commission spokesperson told EURACTIV that the Recovery and Resilience Facility requires “a control framework that is tailored and proportionate to its unique nature.”

For that reason, member states’ national control systems “will serve as the main instrument for safeguarding the financial interests of the Union,” the spokesperson added.

National governments will have to ensure compliance with EU and national laws, including the effective prevention, detection and correction of conflict of interests, corruption and fraud. 

The national governments had to provide sufficient assurances in their recovery plans about how they are going to protect the Union’s budget.

Against this backdrop, national auditing authorities and national courts will play an important role in monitoring that the funds end up financing the green and digital transitions and structural reforms across the bloc.

The 2020 EU Justice Scoreboard showed “a continued improvement in the effectiveness of justice systems in a large majority of Member States,” Justice Commissioner Didier Reynders said last August.

But he noted that “challenges remain to ensure the full trust of citizens in the legal systems of member states where guarantees of status and position of judges might be at risk and subsequently their independence”.

Hungary and Poland are in everybody’s mind, as both are under an Article 7 procedure for putting at risk the rule of law and the independence of the judges in their territory.

But other member states also have outstanding issues with their judiciary systems.

Spain and Italy, the largest beneficiaries of recovery funds, face long-standing challenges with their courts.

In the case of Madrid, three associations representing the majority of judges sent a letter to the Commission in April warning about the “clear risk” of violating the rule of law in Spain. The reason was the reform of the governing body of judges put forward by the government, and seen as a threat to their independence by the judges. 

Italy has been blamed for years for having a notoriously slow judiciary system. For that reason, one of the main reforms included in its recovery plan was a series of measures to improve the Justice, by including temporary hires to deal with the immense backlog of cases and increasing the role of mediation schemes to resolve disputes outside the courts.

A similar problem affects Portugal, which currently holds the EU’s rotating presidency. 

Despite improvements, “the efficiency of the justice system continues to face challenges,” said the Commission in its first Rule of Law report about the country in 2020.

The EU executive addressed this issue in the country-specific recommendations, calling on Lisbon to improve the efficiency in tax and administrative courts 

The Commission said some “considerable gains” were made after Portugal took some measures, including the creation of rapid reaction teams to deal with case backlogs, although proceedings remained comparatively lengthy.

Some of the cases affected by the backlog are those put forward by a group of international investors, following the resolution of Banco Espirito Santo in 2015, who challenged the losses imposed on the €2.2 billion of bonds they held.

EU protection

As part of the recovery fund deal and the EU’s new seven-year budget, the bloc up a new rule of law mechanism to ensure countries receiving EU funds, including the recovery funds, respect these values, including the independence of the judiciary system.

This new tool is under review by the European Court of Justice, after being challenged by Hungary and Poland.

But Vera Jourova, Commission vice-president in charge of values, said she may not wait for the ECJ ruling before taking action.

Asked if the Commission was planning to trigger the sanctions procedure before the court delivers its decision, she told Bloomberg that “we will have to if the ECJ ruling comes too late.”

The new European Public Prosecutor’s Office, which started work on 1 June, will add an additional layer of protection at the EU level, as an EU authority will for the first time have powers to investigate and prosecute crimes committed against the EU budget.

[Edited by Zoran Radosavljevic]

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