EPPO and Investigations in Romania in Covid Times

In summary

This article provides insight into the activity and jurisdiction of the European Public Prosecutor’s Office and the investigative actions taken by the Romanian authorities during the covid-19 pandemic.

Discussion points

• EPPO’s first annual activity report
• Investigations in the context of the pandemic
• Covid-19 aids during the state of emergency
• The National Anti-Corruption Directorate’s activity report for 2021
• The National Recovery and Resilience Plan 2021
• Anticipated developments

Referenced in this article

• EPPO
• National Anti-Corruption Directorate
• Court of Accounts report on public sector acquisitions during the state of emergency
• Unifarm SA
• EPPO’s first annual report
• The National Anti-Corruption Directorate’s activity report for 2021
• The European Commission
• The National Recovery and Resilience Plan 2021
• European Anti-Fraud Office

EPPO

The European Public Prosecutor’s Office (EPPO) started operations on 1 June 2021. The EPPO is an independent and decentralised prosecution office of the European Union, with the competence to investigate, prosecute and bring to judgment crimes against the EU budget, such as fraud, corruption and serious cross-border VAT fraud.^[1]

The EPPO is built on two levels: strategic and operational.

• The strategic level comprises the European Chief Prosecutor (assisted by two deputies), who works alongside the College of Prosecutors – one from each participating member state.
• The operational level is represented by European delegated prosecutors (at least two in each participating member state) who are responsible for investigating, prosecuting and bringing to judgment cases falling within the EPPO’s competence. In their investigations and prosecutions, the delegated prosecutors are monitored and directed by permanent chambers, which will take operational decisions.

So far Romania has appointed seven European delegated prosecutors, all of whom were accepted by the EPPO.

The EPPO will have jurisdiction to investigate, prosecute and bring to judgment the following crimes against the EU budget:

• fraud – the use or presentation of false or incorrect information or the withholding of required information, which leads to the wrongful retention of EU funds or assets, or the diminution of EU resources. Regarding VAT fraud, the EPPO will only be competent if the misconduct relates to at least two participating member states and has caused a total loss of at least €10 million;
• corruption – both active and passive;
• misappropriation of EU funds – disbursement of funds by a public official contrary to their intended purpose and thus damaging the EU’s financial interests; and
• money laundering involving the proceeds of crimes against the European Union’s financial interests.

The EPPO’s jurisdiction will also extend to (1) offences regarding participation in a criminal organisation of which the focus is to commit any of the offences against the European Union’s financial interests and (2) any other crime inextricably linked to the commission of crimes against the European Union’s financial interests.

Before the creation of the EPPO, frauds regarding EU funds were investigated by the National Anti-Corruption Directorate (DNA). The EPPO is set to take over an impressive number of files that are currently being investigated by the DNA that probe corruption offences (eg, bribery, influence peddling and abuse of office) and all types of crimes committed against the financial interests of the European Union.

According to the chief prosecutor of the DNA, the EPPO is set to take over around 500 to 600 criminal investigation files from the DNA, assuming the EPPO will only take over files with damages exceeding €100,000. In addition, the EPPO will take over the cross-border tax evasion files, which are under investigation by other competent prosecution offices.

According to the EPPO’s first annual report,^[2] there are 44 active investigations in Romania with estimated total damages of €1.3 billion. Most reports and complaints (336) came from the national authorities. Seven reports came from EU institutions, bodies, organisations and agencies, and only 10 reports came from private parties. Following these reports, in 291 cases the EPPO took the decision not to exercise competence; only in 60 cases did it decide to exercise its competence.

The countries with the most active EPPO investigations are Italy (102 active investigations), Germany (54 active investigations), Slovakia (42 active investigations), the Czech Republic (34 active investigations) and France (29 active investigations). Although to date no major EPPO investigation has made the headlines in Romania, eight cross-border EPPO investigations involved Romania since either part of the acts had been committed in Romanian territory or Romania had also suffered damage owing to the unlawful activities.

Regarding cross-border investigations, the principal challenges that arise relate to:

• difficulties in coordinating the investigation efforts across cultures and in communicating effectively in different languages;
• differences in laws regarding attorney–client privilege, employee rights and data protection laws across various countries; and
• differences in the attitudes and approaches of the law enforcement authorities.

Certain challenges may also arise owing to the over-criminalisation of certain, non-violent acts, such as the offence of influence peddling incriminating the simple promise to persuade a Romanian public official to act in a certain way, irrespective of whether an undue advantage was pursued or whether the supposed influence was exercised abusively.

Investigations in the covid-19 context

The Romanian authorities continued their enforcement efforts in respect of allegations of corruption in the healthcare sector in 2021, especially in the context of the covid-19 pandemic. Given the supply and demand of medical devices used for protection and sanitary materials and the weak oversight of the authorities owing to the health systems being on the brink of collapse, certain individuals took advantage of the situation and used public money to enrich themselves.

According to an article by Digi24 about the management of public resources during the state of emergency (March to May 2020),^[3] the Court of Accounts announced that the estimated financial and accounting deviations for the said period amount to 659 million Romanian lei (approximately US$144 million), and the damages amount to 38.3 million Romanian lei (approximately US$8.4 million).

The expenses made to fight the pandemic until 30 June 2020, from the state budget, local budgets and the unemployment insurance budget amount to 5 billion Romanian lei (approximately US$1.1 billion) of which:

• 73 per cent represents the payment of the allowance granted during the suspension of the individual employment contract at the initiative of the employer (3.69 billion Romanian lei – approximately US$810 million);
• 13 per cent represents the allowances granted to other categories of staff whose activities were interrupted or took place at a very low level (662 million Romanian lei – approximately US$145 million); and
• 5.3 per cent represents the expenses regarding the medical emergency reserves (266 million Romanian lei – approximately US$58 million).^[4]

During the state of emergency, the Ministry of Health bought the medicines, medical devices and sanitary materials used in the fight against the covid-19 virus by means of the state-owned company Unifarm SA (Unifarm). The budget of Unifarm for 2020 was increased by 1.15 billion Romanian lei (approximately US$250 million) for this purpose. Part of those acquisitions have been investigated by the DNA and led to the indictment of the former director of Unifarm for alleged corruption and breach of public procurement rules.^[5]

Although the speed of investigations at the DNA has been reduced by the restrictions imposed by the authorities in during the pandemic, the DNA managed to conclude several high-profile investigations.

In October 2020, DNA prosecutors indicted the former director of Unifarm for bribery, abuse of office and influence peddling allegations surrounding the conclusion of a contract for the delivery of protective equipment during the pandemic. According to the DNA prosecutors,^[6] the former director of Unifarm requested €760,000 from an intermediary representing a private company for the award of a contract for the purchase of 250,000 hazmat suits and 3 million surgical masks, in breach of public procurement rules.

Together with the former director, the DNA prosecutors also indicted the former head of commercial services at Unifarm, who allegedly unrealistically attested on the awarding documentation the fact that the negotiation was carried out with the legal representative of the private company, when in fact the negotiation took place between the former director of Unifarm and the intermediary at a restaurant in Bucharest.

According to the prosecutors, for this activity, the intermediary requested 18 per cent of the contract value (ie, 5,810,175 Romanian lei – approximately US$1.2 million), of which €760,000 would go to the former director of Unifarm.

The prosecutors further claim that the former director of Unifarm decided to unilaterally terminate the contract because the private company failed to pay the requested amount to the intermediary, despite the fact that the latter delivered part of the products. The damage caused to Unifarm amounts to 2.38 million Romanian lei (approximately US$520,000) – the value of the products delivered by the private company, part of which did not observe the standards mentioned in the contract.

According to a DNA press release dated December 2020,7 the former director of Unifarm is also under investigation for abuse of office as he allegedly awarded a private company with a 4.5 million Romanian lei (approximately US$1 million) contract for the purchase of 1.5 million three-ply surgical masks, in breach of public procurement rules.

The prosecutors claim that although the private company had not been approved by the National Agency for Medicines and Medical Devices for the import and distribution of three-ply surgical masks at the date of concluding the contract, two days after conclusion, Unifarm’s director made an advance payment of 3.6 million Romanian lei (approximately US$790,000). At the date of the press release, the company did not deliver any masks, and after the termination of the contract it failed to return the amount received as an advance payment.

The former director of Unifarm may also be subject to another investigation for alleged fraud, abuse of office and making false statements in connection with the acquisition of medical masks during the state of emergency.^[8] Judicial sources claim that the case concerns the acquisition by Unifarm of 1.2 million masks from a private company. The masks were distributed in hospitals throughout Romania but were later withdrawn owing to issues reported by medical staff. The masks were also subject to an alert at the European level owing to their low filtering capacity.

Covid-19 aids during the state of emergency

During the state of emergency, the government issued legislation supporting employers that needed to suspend the employment contracts of their employees owing to the pandemic by bearing 75 per cent of the employees’ gross salary (but not more than 75 per cent of the average gross salary at the national level).

Over 1 million employment contracts are reported to have been suspended owing to the pandemic between March and May 2020. This has translated into a large number of applications for state support during the technical unemployment period.

The Romanian authorities announced controls and severe sanctions for employers that may have illegally claimed (and obtained) technical unemployment support offered by the government in the context of the pandemic.^[9] These controls may materialise in the form of notifications to the competent criminal investigation authorities, as announced by the Ministry of Labour and Social Protection at the time.^[10]

According to the Ministry, the main focus seemed to be on the companies that, despite having applied for technical unemployment support, did not in fact interrupt their activity during the state of emergency and requested their employees to come to work. In other cases, there were suspicions that employers may have submitted the same application with authorities from different counties to receive multiple payments.

In addition to returning any illegally obtained amounts to the state, companies that illegally applied for the technical unemployment support from the state may also face criminal law sanctions.

Considering that the costs from the Unemployment Social Contributions Budget were covered by European non-reimbursable funds, if the companies were not eligible to apply for the aid, the director or the legal representative of the companies, as well as the companies themselves, may be held criminally liable for unlawfully obtaining European funds, which is punishable by up to 14 years’ imprisonment for individuals and a maximum fine of 3 million Romanian lei (approximately US$658,000) for the companies. Such crimes fall within the EPPO’s jurisdiction.

DNA’s activity report for 2021

According to the DNA’s activity report for 2021,^[11] 175 criminal files have been registered since the beginning of the state of emergency (ie, 16 March 2020) in connection with the covid-19 pandemic. The DNA finalised 27 cases, issuing seven indictments (in respect of 19 individuals) and concluding four guilty plea agreements. In December 2021, the DNA still had 89 active cases concerning the pandemic under investigation.

The number of DNA investigations relating to the pandemic increased in 2021, given that only 33 criminal cases had been registered in May 2020.^[12] These investigations revealed:

• breaches of legal provisions for the organisation, award and performance of direct public procurement contracts for protective equipment (masks, face coverings and hazmat suits);
• purchases of non-compliant masks that are deemed dangerous and prohibited in the European Union; and
• unlawful establishment of quarantine centres and assignment of people to quarantine centres.

In a detailed interview dated June 2020,^[13] in respect of public procurement, the chief prosecutor of the DNA stated that the prosecution office was taking a close look at both public procurement relating to the pandemic and public procurement in general. This is because, in respect of the latter, public procurement also took place in other areas where crime is suspected of being perpetrated.

In this respect, at the date of this interview, the DNA had registered 38 criminal files concerning alleged breaches of public procurement rules with undue benefits for certain people and the alleged purchase of goods that do not comply with EU requirements or with those of their destination.

The value of the contracts under investigation by the DNA at the date of the interview amounted to 800 million Romanian lei (approximately US$175 million). The chief prosecutor of the DNA stated that damages in acquisitions of non-compliant goods amount to the total value of the contracts, while the damages in corruption allegations (eg, bribery and influence peddling) or crimes related to those of corruption (eg, abuse of office) are between 5 per cent and 18 per cent of the contract value (the damages in each of those files ranges between €400,000 and €4 million.

National Recovery and Resilience Plan 2021

The European Commission adopted a positive assessment of Romania’s recovery and resilience plan,^[14] under which the country will receive €14.2 billion in grants and €14.9 billion in loans under the EU Recovery and Resilience Facility (RRF).

The RRF is the key instrument of NextGenerationEU, the European Union’s covid-19 recovery plan and the Multiannual Financial Framework, the European Union’s long-term budget.^[15]

The National Recovery and Resilience Plan (NRRP) is structured into the following six pillars: green transition; digital transformation; smart growth; social and territorial cohesion; health and economic, social and institutional resilience; and policies for the next generation, children and youth.

Thirteen of the 21 milestones and targets that the government had to meet by 31 December 2021 were met.^[16] So far, Romania has received €3.7 billion under the NRRP. Romania will have to follow tight restrictions regarding spending the €30 billion it will receive in line with the provisions set by the European Union: at least 40 per cent must be for green projects and more than 20 per cent must be for digitisation.^[17]

Investments in natural gas infrastructure were also accepted as being eligible after several countries, including Romania, pressed for this. The €30 billion will be divided as follows: 40 per cent as soft loans and 60 per cent as grants.

According to a member of the European Parliament,^[18] the projects submitted by local authorities through the National Local Development Programme can be funded by the NRRP if they comply with European rules. Projects with feasibility studies, which are not financed by other European funds, can be included in the NRRP if the works will be carried out in the future or were carried out from 1 February 2020.

A Bucharest mayor stated that he had completed the legal procedures and submitted projects amounting to over €117 million for financing through the NRRP.

Investments financed under this plan must start by 2024 and be completed by 2027.

Anticipated developments

According to the 2019 report of the European Anti-Fraud Office (OLAF), Romania is the member state with the highest number of investigations into the use of EU funds managed or spent in whole or in part at the national or regional level in 2019. More than 10 per cent of the total number of OLAF investigations in 2019 were conducted in respect of EU funds spent in Romania.

Romanian authorities are expected to continue their enforcement efforts in respect of allegations of corruption in the healthcare sector in 2022, especially given the pandemic and the need to allocate funds to procure medicines and medical devices.

Given the large amount of European funds that went or are going to many EU countries, including emerging members such as Romania, as aid to combat the covid-19 virus or as part of the Recovery and Resilience Facility, the EPPO will have the authority to investigate alleged misconduct regarding the way the European funds are spent during the pandemic and beyond.

Notes