MEPs concerned by attempts to finance national spending with recovery funds

MEPs have voiced concerns over the limited options the EU has to check on how the money from the Recovery and Resilience Facility (RRF) funds are being used by member states in a vote this week.

This follows red flags raised by the European Court of Auditors of Malta’s exaggerated use of direct orders for public contracts and EPPO investigations into the fraudulent use of EU funds in Malta.

They also expressed concern on Wednesday over “first indications” that “some EU countries” may be seeking to use post-Covid recovery funding to replace national expenditure rather than for the reforms and investments set out in national RRF plans.

While the MEPs on the committee responsible for discharging EU funds did not mention Malta specifically this week, or any other country for that matter, Malta’s handling of its €316 million slice of the pan-EU post-Covid recovery funding facility is clearly in their sights.

Malta tried to have regular national expenditure enshrined in RRF

That is because when it comes to their concerns about some countries attempting to use RRF funds to replace national expenditure, Malta has made a past attempt to have the practice enshrined in the facility itself.

It was recently uncovered how the Maltese delegation negotiating the country’s prospective funding from the RRF’s €700 billion fund had lobbied to include old projects in its funding programme.

The finding comes from an ‘access to documents’ request from Follow the Money for the EU Council’s 250-page document containing member states’ positions on the then-draft regulation.

The document shows how the Maltese delegation contended, “We feel that the concept of retroactive eligibility should be taken into consideration, thus allowing member states sufficient flexibility to include proposals for reforms that would have already taken place.”

The line of reasoning flies in the face of the RRF’s stipulation that payments through the programme are conditional on the pledged reforms achieved.

The document shows diplomats from France, Cyprus, Latvia and Hungary joined Malta in lobbying for the inclusion of projects already underway, completed or near completion in the new funding.

Budgetary Control Committee members have also called on the European Commission to carry out additional checks to prevent that from happening.

Malta recently received its first RRF payment of €53.3 million out of a total of €316 million allocated for the country.

The Shift has reported how one of Malta RRF projects – a €16 million project entirely funded by the RRF for a new ferry landing, breakwater and ancillary facilities in Bugibba – is threatening a Natura 2000 marine site off the coast of Buġibba, which the EU itself has designated for protection and which may be in violation of EU rules. It could eventually be disqualified from RRF and EU funding.

The project was recently approved by the Environment and Resources Authority.

ECA already raised red flags on Malta’s direct orders

MEPs said this week that since it was set up “under time pressure”, control requirements are lighter than those for other EU programmes such as those related to for cohesion and agriculture funds.

RRF and more reliant on the national authorities, they said, which in some cases are “too error-prone and unreliable”.

A recent report by the European Court of Auditors found red flags concerning Malta and its agriculture and cohesion policy spending – one of the EU’s biggest spending areas –in the public procurement process and which could lead to conflicts of interest.

The ECA has flagged how the same contractors are repeatedly winning tenders from a particular contracting authority in Malta.

The ECA also raised Malta’s departure from standard tendering procedures without good reason, such as choosing a negotiated procedure (direct order) when an open procedure could have been used.

The ECA report referred to the 2019 annual report by Malta’s National Audit Office (NAO), which had raised several concerns about the country’s public procurement process, particularly when using direct orders without the necessary approvals and the lack of publication in the dedicated journal.

Misuse, fraud and organised crime

MEPs also warned this week about the risk of misuse, fraud and organised crime, and asked the European Commission to tighten checks on member states’ internal control systems to prevent and detect fraud, corruption and conflicts of interests.

The resolution raises questions about the Commission’s assessment of national compliance with ‘milestones and targets’ (conditional criteria for EU countries to receive RRF payments) and stresses their lack of clarity and comparable definitions. MEPs ask the Commission to refrain from assessing this compliance “on the basis of political negotiations”.

Ahead of the vote, which was passed, co-rapporteur for the Commission’s discharge Monika Hohlmeier complained that there is “still no information on how much of the RRF money has reached the real economy”, nor enough meaningful cooperation with the regions, to make sure that they benefit from RRF.

“I have the impression that the ambition when launching the RRF has by far exceeded the reality of how it is being implemented on the ground.”

She had said last month that, “We are yet to be reassured that recovery money will reach the final beneficiaries in due time and will not be used by member states for other purposes.”

MEPs also questioned the Commission’s assessment of national compliance with ‘milestones and targets’ (conditional criteria for EU countries to receive RRF payments) and stressed their lack of clarity and comparable definitions.

They also requested that a fraud reporting mechanism be introduced, reporting to the Commission and the European Public Prosecutor’s Office.

The European Public Prosecutor’s Office (EPPO) opened 14 investigations into the suspected fraud of EU funds in Malta last year worth an estimated €123.5 million.

All 14 investigations were active at the end of last year. The EPPO does not make the details of the investigations it is conducting public but it does give general indications.

The EPPO has five ongoing expenditure investigations in Malta. Three of these deal with agricultural and rural development programmes, one with maritime and fisheries programmes, and another is related to mobility and transport, energy, and digitalisation programmes.