The analysis of EU and Romanian infrastructure funds

EFOR policy brief # 61, Money and Politics – the links between public procurement and political parties

EFOR published PB # 61, Money and Politics – the links between public procurement and political parties. The report analyzes the extent to which national and European infrastructure funds are politicized and used as an clientelistic instrument.

We analyzed millions of procurement procedures  and decisions to allocate funds from the Romanian Operational Programs, including Regional, Transport and Environment, the National Program for Rural Development (allocations for the programming period 2007-2013), as well as the projects funded by Romanian money through the National Investments Company and the National Program for Local Development for 2007-2016. We have also analyzed tens of thousands of donations from private companies and individuals to political parties.

Some of the findings of the research:

  • the highest value of donations was recorded in 2008-2009, and 36% of all donations ever received by the parties went to the Liberal Democratic Party
  • although companies legally donate to parties, and the amounts are recorded in the Official Gazette, there is a significant component of illegal funding of political parties and electoral campaigns, through rigged public procurement, fictitious or overrated contracts, abuse of public resources, and clientele calls that can facilitate rigged purchases; 1724 companies donated from parties between 2006 and 2015, 616 won public procurement, and 303 signed contracts with European money
  • politicians use their public position to raise money for personal use, and only a small part of the money reaches the party
  • companies with political support prefer Romanian money, as control mechanisms are lighter; however, there are also significant vulnerabilities in terms of European money
  • although the law does not allow, companies that have contracts with the state donate to political parties less than 12 months before election day
  • the market is dominated by large companies that have the capacity and resources; however, historically speaking, much of it have grown because of political ties
  • a significant number of top 30-40 firms as construction contract values ​​ (Vega 93, Confort, Delta ACM 93, Tancrad, Spedition UMB, Dimar, UTI Group, Iridex Grup Constructii, Cast, Tel Drum, Victor Construct, Selina, Romenergo, Concas, Tehnodomus etc), consultancy (Fichtner Environment, Ramboll South East Europe, Integroup Engineering etc), feasibility studies or advertising services (Media Investment Communication, Romair Consulting, Expert One Research etc) are directly or circumscribed by political parties or have criminal files for fraud, tax evasion or money laundering
  • regarding the Romanian money, there are indications that the distribution of funds is directly related to the political colour of the party in power
  • in terms of criminal convictions, most of the cases are related to frauds with EU funds or abuse of power; the decisions in cases such as  Adrian Năstase, Sorin Frunzăverde sau Florin Popescu show how powerful are the political leaders in the county or at the national level and how they use the entire institutional system for the electoral cause; also, a frequent situation is the bribe (usually 10%) of the contracts either for awarding or for paying the company for the works
  • some of the main risks related to the analyzed procurement procedures are: conflicts of interest, systematic contracting of consulting companies by several mayors in a certain areal, people from public institutions (or who have worked in public institutions) facilitating the winning of contracts , over-valued or fictitious consulting contracts, large differences between the contract value and the final amount with additional costs, direct contracts that are systematically granted to companies with political ties, companies with camouflaged real owners (who control the company but are not included in documents).
  • the databases produced by different Romanian institutions (SEAP, fonduri-ue.ro, etc.) do not communicate and contain significant errors that prevent any professional analysis; this report required more time for database cleaning and arranging than for the actual analysis. Data on party financing or company ownership is difficult to obtain or involves high costs

Some of the most frequent clientelistic financing mechanisms, fraud and potential illegal funding mechanisms identified:
paying a commission (typically 10-20%) of the contract value by a company to the contracting authority in order to win a public procurement; in some cases part of the money goes from the decision-maker (county council president, minister, etc.) to the party

  • requesting bribes by decision-makers (eg mayor, county councilor) to approve payments for works already executed by companies
  • the use of false or overrated consultancy contracts to mask the illegal campaign funding
  • obtaining funds in situations of conflict of interest
    – the decision-maker is the shareholder, administrator or is controlling the firm in any other form and uses the public office to directly or indirectly get contracts for the company
    – the existence of firms whose leaders are decision-makers who work or worked at public institutions such as CNADNR or MDRAP – institutions that manage funds and procurement procedures
  • soliciting from companies various products or services for electoral campaigns (campaign materials electoral, consulting or advertising services, food, etc.)
  • determining the local decision-makers (mayors, for example) by a county council president or other political leader to cast votes in exchange for approving funds (for example, from the National Program for Local Development).
  • obtaining funds illegally under the pretext of organizing events, by paying participation fees
  • overestimating contracts illegally, although there is no justification for works or services (consultancy, feasibility studies, etc.)
  • appointing people close to political parties in key posts (for example at the head of state-owned companies) to facilitate the procurement of public procurement contracts; part of the money to get to the party

More conclusions, as well as the analysis of funds and companies that have earned the money for infrastructure, can be found in policy brief # 61 (currently only available in English). Here you will find the situation of the Croatian funds, perspectives on new legislation on public procurement and political parties, as well as the analysis of conviction decisions in lawsuits related to illegal party financing and public procurement.

List of potential fraud indicators and patterns