FASI: Funding Aid Strategies Investments

The EU blacklisting system to protect the budget is not effective

Credits: ECAThe European blacklist of excluded entities is not used effectively to prevent EU funds from fraud, according to a new report by the Luxembourg-based European Court of Auditors. Moreover, 4 EU Member states don't have a system to screen entities or individuals before they get European funds.

The EU and the Member States are jointly responsible for protecting the EU’s financial interests with respect to EU funds. Early Detection and Exclusion System (EDES) is a key tool operated by the European Commission since 2016 to avoid entering into financial agreements with untrustworthy counterparties, such as those involved in fraud, corruption, professional misconduct, and money laundering or non-payment of taxes.

As the report notes, the dysfunctional management of EDES means potential fraudsters are likely to gain access to EU money, mainly because the responsibility for the system is spread out over numerous different Commission's departments. Out of 448 companies named on the EU blacklist at the end of 2020, only 18 had been excluded from accessing EU funds due to serious breach of contract (10 exclusions), grave professional misconduct (6) or fraud (2). All the other 430 companies have been excluded for bankruptcy or insolvency. In the Court's view, this low rate of blacklisting on the EDES (0,5 compared to the 25 of the US federal government and the 27 of the World Bank) is due to the shortcomings of mechanisms designed to identify counterparties in situations.

The fragmentation of responsibility for identifying counterparties in exclusion situations is also apparent with regard to cases of suspected fraud against the EU budget. The responsible authorising officer is required to notify OLAF, the European Antifraud Office, of the suspected fraud and should check whether or not to register an early detection case in the EDES.  However, "OLAF is not explicitly required to recommend registering an early detection or exclusion case", explains the report of the Court of Auditors. 

Since 2016, the European Commission has been responsible for operating the EDES only for a quarter of EU spending (€39 billion). EU spending involves also national authorities (€111 billion) of the Member States that have to follow exclusion-related obligations, but they are not required to set up exclusion systems or databases per se. The report highlights that Estonia, Italy, Poland and Portugal don't have any fully functional system in place to screen people before they get EU funds.

"The EU and member states have in fact taken different approaches”, explained Helga Berger, Member of the Court of Auditors. "On the other hand, the useful data is either not available or not used to compile the EU blacklist, compromising its usefulness and deterrent effect. A system is effective only if it is fed with the necessary information", concluded Berger.

Protecting the EU Budget - Better use of blacklisting needed