Is the mafia about to get a massive financial injection from the EU?

Copyright: "Michael Corleone" by cal.almonds is licensed under CC BY 2.0

In an interview with EUObserver, Italian criminal law Professor Vincenzo Musacchio makes a remarkable statement on what has happened to the billions of euros the European Union has been spending in Italy in the last few years:

“Between 2015 and 2020, the EU has allocated around €70bn to Italy in structural & investment funds. Half of these funds ended up in the hands of organised crime”

Professor Musacchio isn’t some kind of random observer, but a true “expert in organized crime and strategies to fight corruption”, as revealed by his website, active since 1992 and associated, amongst others, with the prestigious Rutgers Institute on Anti-Corruption Studies in New York. He has truly devoted his life to the struggle against Italy’s mafia.

His assertion was challenged on twitter by Gert Jan Koopman, the Director-General of the European Commission’s “EU Budget” department:

So are we now talking about “less than 1% of the EU budget” or is it a lot more?

The European Court of Auditors (ECA), which serves as the institutional watchdog of EU spending, has pointed out that “the Commission’s fraud numbers regarding EU spending — compiled using figures forwarded to [EU anti-fraud body] OLAF by member countries — are incomplete” and that “cases of fraud can be difficult to identify during standard audit procedures”.

It is illustrative that Hungary and Estonia have reported a lower level of EU funding irregularities than Belgium and the Netherlands, which isn’t very credible given the latter’s better performance on international corruption rankings.

In 2019, the Court of Auditors openly criticized OLAF, stating that when it comes to dealing with misuse of EU expenditure, “OLAF’s results are truly, very surprisingly weak.” It would like to see more systemic analysis and research into fraud, but apparently, OLAF does not believe that this effort is cost-effective. Taxpayers may differ.

The ECA has singled out EU cohesion funds – a lot of whom flow to Italy – as particularly vulnerable to fraud. It has pointed out that EU “cohesion policy represents one third of the EU budget but accounts for nearly 40% of all reported fraud cases and almost three quarters of the total financial amounts involved in these cases”.

In particular, the ECA has criticized EU member states for not being effective enough to combat this, complaining that “in a significant proportion of cases OLAF closes with a recommendation to recover unduly paid EU money, either no such recovery takes place or the amount recovered is significantly lower than that recommended”.

In sum, official EU statistics on fraud with EU funds are reliant on member states that haven’t been particularly successful in fighting the fraud in the first place and should therefore be taken with a pinch of salt.

Whatever reputed national experts say, should therefore be taken serious, especially when they come up with estimates that half of EU funds flowing to Italy in recent years would have been skimmed off by the mafia.

More evidence is available. A 2018 study for the Italian Central Bank looked at the effect of EU cohesion funds on the South of Italy, concluding that “EU funds’ disbursements significantly increased the number of white collar crimes”, thereby even providing a precise estimate of the increase, putting it at “about 4%” on average per year”.

According to another expert, Antonio Nicaso, the mafia has been tightening their grip on the Italian society and economy even more, as a result of Covid, which has hit Italy hard, as “mafias have always been profiting from disasters”. He notes that “the drug economy is not a parallel economy to the legitimate one, but an integrated one. Money-laundering is now becoming the oxygen of the legal economy”.

Stefania Pellegrini, a law professor at the University of Bologna, explains that the mafia does not use violence to seize European funds, but corruption, for example in local public administration, warning “and this is what will happen with the Recovery Fund”.

With EU recovery fund cash and ordinary EU spending combined, Italy is about to receive a whopping 8% of its GDP in recovery fund grants and structural funds, as well as up to 6.8% of its GDP in recovery fund loans with a preferential interest rate.

Also the likes of Europol’s Executive Director, Catherine De Bolle and Davide Del Monte, Italy Director at Transparency International, have issued stern warnings, with the latter saying: “the mafia is waiting for all this money to flow into the Italian economy”, adding that this is a pan-European issue as “they use trust funds in Luxembourg, they open bank accounts in the UK or in the Netherlands, and then open business firms all over Europe”.

It is well-known that organized crime now operates at a global level, but there seems to be relatively little political concern, at least in Brussels, over how crime groups are awaiting EU recovery cash in order to step up their sinister operations.

Maurizio Vallone, Italy’s top investigator on organized crime, disclosed last month that “the mafia has been choosing the companies that are best-placed to take part in recovery fund tenders, especially in the health and infrastructure sectors where a great deal of money will be spent.”

Like many other experts, Professor Musacchio has urged the new Italian government of PM Mario Draghi to not simplify procurement procedures to obtain EU recovery cash, as this may otherwise “help the businesses of the mafias”, even if more complex procedures “do not make life easier for honest companies in difficulty.”

On top of all the other concerns surrounding the “EU recovery fund”, this should all serve as yet more reason to reconsider whether this new massive, 750 billion euro EU spending scheme is really such a good idea.